Here’s Why Cineplex Inc. Should Be a Core Holding

Impressive 2015 results send Cineplex Inc. (TSX:CGX) higher.

| More on:
The Motley Fool

Cineplex Inc. (TSX:CGX) once again impressed investors with solid results that show increasing attendance and strong performance out of every segment. Here are five trends that lead me to believe that Cineplex should be a core holding in your portfolio.

Strong box office revenues

Box office revenues represented 59% of total revenues in the quarter and 52% of revenues for the year. Revenues increased 13.8% in the fourth quarter and 5.7% for the full year. Breaking this number down, fourth-quarter attendance increased 7.1%, and box office revenue per patron increased 6.3%.

A big driver of this performance was the success of Star Wars: The Force Awakens, but also because box office revenues from premium-priced products increased significantly and represented 46.8% of box office revenues compared to 29.4% in the same period last year.

Keep in mind that gross margins on box office revenues are significantly below gross margins on the company’s other sources of revenues, particularly the media segment. Box office gross margins are in the 50% range, while gross margins on media revenues, for example, are over 80%. In the long term, it is the goal of management to generate 25-50% of EBITDA from non-Hollywood products. It should be at close to 20% by the end of 2016.

Strong food service revenue

Concession revenue increased 16.4% in the fourth quarter and accounted for 34.3% of total revenue. This was due to the increase in attendance as well as an 8.6% increase in concession revenue per patron to $5.58 from $5.14.

The company has made efforts to expand its food offerings in the cinema as well as to expand its food offerings in the VIP theatre, and this has translated into higher transaction values.

Strong cash flow generation

Adjusted free cash flow per share increased 23.5% in the fourth quarter, and the company’s balance sheet is strong with a debt-to-capitalization ratio of 37%. This will enable the company to continue to invest in the growth in its non-Hollywood segments.

The company currently has a healthy dividend yield of 3.17%.

Future opportunities

Cineplex will continue to focus on growing its gaming business both organically and through acquisitions, and the acquisition of the remaining 50% of Starburst Inc. will allow Cineplex to continue to grow both in Canada and in the U.S.

The E-Sports opportunity is also one that management continues to focus on with the first tournament finals taking place in March at Scotiabank theatre. Cineplex is seeing strong interest from gamers as well as advertisers.

Management also believes that the media business represents another promising area of growth.

In conclusion

The Cineplex management team has shown that they are a forward-looking, pro-active team with a focused strategy aimed at reinventing their business in the long term. And with growth coming from all segments of the business and total revenue up 22.6%, management is clearly finding success with this.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »