Cineplex’s stock is looking cheap, Bruce Murray says

The market has been beating up on Cineplex (Cineplex Stock Quote, Chart TSX:CGX) for a while now but strange as it may sound there’s a lot to like about the company and the stock, says fund manager Bruce Murray, who thinks 2019 could be a feel-good story for CGX.

“We’re looking at Cineplex. It’s got a nice, fat dividend yield and the stock has come way off,” says Murray, of the Murray Wealth Group, in conversation with BNN Bloomberg on Monday. “We all know about Netflix and its movies and things like that [but] Cineplex has been very well managed over the years.”

“There’s a company out there called Dave and Buster’s which has been very success at operating entertainment-based destinations and I think Cineplex with their Rec Room is trying to copy this concept and if they’re successful, we think they’ll do just fine,” he says.

Cineplex had a couple of major drop-offs over the past two years, the first in mid-2017 in reaction to a quarterly dip in profit and reported lower attendance and the second this past November when CGX’s third quarter financials missed analysts’ estimates on profit, even as revenues saw an increase of four per cent. All told, CGX has gone from a high of $54.81 in May of 2017 to where it now trades in the low-$24.00 region.

Murray says that there’s both good and bad to Cineplex but investors may be rewarded for picking it up at these reduced prices.

“The company is paying out all of its cash and every time they come up with a new project their debt is expanding. That’s the issue here,” Murray says. “The movie business was kind of crummy last year, but this year, my understanding is that there are a lot more exciting movies coming, so you’ll probably get an uptick in movie attendance.”

“So, I believe that you could buy the stock here, at least for a trade-up in the next 12 months and you’ll get a nice dividend yield,” he says.

Cineplex last reported quarter came on February 15 where its fiscal Q4 featured revenue of $428.2 million, slightly up from the previous year’s fourth quarter top line of $426.3 million. Profit was down year-over-year, however, with a net income of $27.2 million versus the previous year’s $28.8 million. On EPS, CGX posted 43 cents per share, whereas analysts were expecting 46 cents per share.