Snow Wars: Cineplex Q4 results could be hit by bad weather, says Canaccord Genuity

With a new Star Wars movie on the way, the fourth quarter was looking like it could be a boon for Cineplex (TSX:CGX).

Not so fast, says Canaccord Genuity analyst Aravinda Galappatthige.

In a research update to clients Friday, Galappatthige, maintained his “Buy” rating on Cineplex, but lowered his one-year price target on the stock from $47.00 to $43.00, implying a return of 28 per cent over the Thursday’s closing price of $33.61.

The analyst says this quarter was shaping up to fall below expectations to begin with. Throw in frigid weather across much of Canada and the quarter looks to be even worse.

“Using data from the Motion Picture Theatre Association of Canada (MPTAC), we estimate a 3.9% y/y increase in overall Q4/17 Canadian box office sales,” the analyst explains. “This compares with our original expectation of 8% growth. The variance vs. expectations is due to the last couple of weeks of December coming in below assumptions despite the strength of the new Star Wars title, we suspect partly due to worse than usual weather conditions. Star Wars: The Last Jedi, Thor:Ragnarok and Justice League led the quarter in terms of titles.”

Galappatthige says he expects Cineplex will generate EBITDA of $77.6-million on revenue of $432.8-million in the fourth quarter.

The analyst says he thinks there won’t really be any action on Cineplex until the middle of next year.

“In light of recent box office softness and generally negative industry sentiment, we expect CGX will remain range bound through Q1/18,” he says. “We expect a soft box office in Q1, as well. While the double-digit EBITDA growth expected in Q4/17 could trigger an uptick, we believe that a more pronounced rebound would be dependent on 1) an easing of fears around structural challenges in the theatre industry; 2) greater traction in digital signage; 3) a more elongated track record at the REC Room; and 4) some visibility around an easing in capex levels.”

Shares of Cineplex closed today up 0.7 per cent to $33.83.