RBC raises price target on Cineplex

RBC Dominion Securities says Cineplex’s (Cineplex Stock Quote, Chart, News, Analysts, Financials TSX:CGX) box-office momentum is building after a mixed Q2.

As reported by the Globe and Mail, in an Aug. 12 update, analyst Drew McReynolds maintained his “Outperform” rating on Cineplex and raised his target to $14.00 from $13.00. The average target is $13.13.

“We believe a strengthened theatrical release window, added film supply from streaming platforms and still-untapped growth opportunities for Cineplex Media, location-based entertainment and Scene+ have bolstered Cineplex earnings power,” McReynolds said.

Cineplex reported Q2 revenue of $383.7-million, up 9.8% year-over-year and in line with expectations. Adjusted EBITDA after leases was $40.8-million, below McReynolds’ $49.2-million estimate.

He said the miss reflected higher film costs, transitional costs tied to a change in the company’s long-term incentive plan, marketing costs at Scene+ and lower location-based entertainment margins because of weaker higher-margin amusement revenue during the FIFA World Cup.

Cineplex shares fell 5.3% Tuesday after the results.

McReynolds said underlying operating leverage remains intact, with Cineplex Media revenue up 4.4% year-over-year and location-based entertainment revenue down 3.7% while still facing macro headwinds.

July box-office revenue was $72.6-million, flat year-over-year against a tough comparison, while August is off to a record start. Management now expects domestic box-office growth to track toward the high end of the industry’s initial 10% to 15% forecast for 2026.

McReynolds said Cineplex should benefit from a stronger second-half box office, a diversified asset mix and potential for improved capital returns. He also said management expects to reach its 2.5 to three times leverage target by Q4 if the box office meets expectations.

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