Cineplex could bounce back, this portfolio manager says

In 2018, Cineplex (Cineplex Stock Quote, Chart TSX:CGX) had what could be summed up as a year to forget, with its share price falling off a cliff not once but twice and ending up down a full 31.9 per cent.

And while the jury is still out on whether the movie and entertainment company can reel customers back in (peeling them off their couches and away from streaming services like Netflix and Amazon Prime), there’s still a lot to like about the company going forward, says investor Bruce Murray of the Murray Wealth Group.

Murray argues that Cineplex’s attempts at diversifying its offerings —adding VIP seating, expanding its Rec Room line up of attractions and games— has yet to prove itself, but nonetheless he has praise for the company’s management.

“Cineplex obviously moves up and down mainly with the success of the movie business, and over the last year or so they haven’t had the blockbusters that they had before. Then we had the [period last fall] where just about everything sold off,” Murray says, in conversation with BNN Bloomberg.

“The new businesses they’re getting into, we don’t really know whether they’re going to work or not,” he says, “although, I was at the movie theatre on the weekend at one of their big Cineplexes and there were a lot of kids in there playing games and stuff, so it appears to be working, just from that observation.”

Cineplex last reported its quarterly earnings on November 14 where it generated $386.7 million in revenue for the company’s third quarter ended September 30, a 4.4 increase year-over-year, yet it managed just $10.2 million in earnings, a 40.7 per cent drop from the $17.2 million in Q3 of 2017. The dip in profits were attributed to lower ad revenue and having some of its screens out of commission.

Still, the company produced $16.8 million in revenue from its Rec Room venues, which represented a 28 per cent increase year-over-year in food services and a big 91 per cent increase in amusement revenues. Last year, Cineplex announced a new partnership with VRStudios to bring between 30 and 40 virtual reality installations to theatres across Canada, while in December, the company opened Canada’s first “ScreenX” auditorium in Toronto, an immersive experience using multi-projection theatre technology.

Cineplex also boasts a substantial dividend, which at the stock’s current price is yielding 6.6 per cent.

“The company is extremely well-managed,” Murray says. “So, I think you could hold onto it and it should come back. You’ve got a management team that seems to understand the business and can move with it and change.”