The success of the movies Halloween and Venom highlights how hit dependent Cineplex (Cineplex Stock Quote, Chart TSX:CGX) is and how good things can be when the hits are rolling, says Echelon Wealth Partners analyst Rob Goff.
In a research report to clients Wednesday, Goff maintained his “Buy” rating and one-year price target of $40.00 on CGX, implying a return of 17.1 per cent at the time of publication.
Noting that Halloween and Venom pushed October ahead 35% year over year, Goff says he continues to see Cineplex as a good, if volatile, investment.
“We continue to see Cineplex as an attractive value stock albeit with increased volatility about a box office, where monthly revenue swings reflect increased hit dependency,” the analyst says. Fortunately, the strengths of hits leaves N. American box office revenues on trend to record levels for 2018 N. American box revenues with revenues for the YTD ahead 10.3% (source: Box Office Mojo). N. American Box office revenues gained 9.1% y/y for Q318 measured against a terrible Q317 where the box declined 27% y/y due to August of 2017. We note that Q218 saw y/y gains of 24.1% after a tough start to 2018 with Q118 down 10.3% y/y.”
Goff thinks CGX will generate EBITDA of $273.9-million on revenue of $163-billion in fiscal 2018.
Goff adds that beneath the home run type environment that pervades, CGX has been hitting singles and doubles operationally.
“The improved box office environment has also been complemented with higher per patron revenues as CGX’s Q218 box office revenue per patron (BPP) at $10.51 gained +3.5% y/y and the concessions sales per patron (CPP) at $6.34 were ahead +8.2% y/y. We estimate that gross profit from concession sales exceeds box office related gross profits where studio royalties for Q218 were 54.8% of box office revenues. The improved revenues have then seen the benefits of Cineplex’s cost savings initiative where CGX is ahead of plan towards the target annualized savings of $25M.”