Cineplex Inc. Results Give Investors Food for Thought

Cineplex Inc.’s (TSX:CGX) first quarter shows the benefits of diversification.

| More on:

The first quarter of 2017 was a good one for Cineplex Inc. (TSX:CGX).

Cineplex posted a decent 4% increase in revenue, and the “other” segment, which now represents 21.6% of revenue, increased 24.4%. This segment offset more lacklustre performance by the box office segment (49.6% of revenue) and the food service segment (28.9% of revenue), which saw revenue growth of -1.7% and +1.7%, respectively. Notable in the quarter was the growth in the all-important box office per patron (BPP) and concession revenue per patron (CPP), which increased 3.3% and 5%, respectively.

So, as we have seen from the revenue results, diversification is paying off.

Dividend hike

The dividend was increased 3.7% this quarter, and the dividend yield on the stock now stands at 3.1% — a good yield for income-seeking investors.

Upside?

With ticket prices steadily increasing as the company adds enhanced offerings for movie goers, I question how much upside is left. We have seen BPP increase 3.3% to a record $9.97 in the first quarter — a result of increasing premium product offerings that have been well accepted by movie goers. Premium products now represent 44.9% of box office revenue, which is up from 42.2% last year. And CPP increased 5% to $5.71 in the first quarter.

While the company still has some initiatives it is working on to drive BPP higher (most notably, the recliner seats), it appears to me that upside in this area is getting to be limited.

On another note, the video-on-demand business is one that management has flagged as having good growth ahead of it; they can see double-digit growth ahead. And, of course, we know that the amusement and Rec Room businesses are seeing good growth.

Capital expenditures to remain high

Cineplex has all the markings of a good long-term holding for investors. The only thing I would caution is the fact that the stock’s valuation is not cheap, and, more importantly, that in pursuit of growth in its non-Hollywood revenue, the company will continue to see an increased level of capital investment in the next few years.

These factors might put pressure on the stock in the short term.

Valuation

I would like to close by looking a little more closely at valuation of Cineplex’s shares. The stock now trades at 30 times this year’s earnings and 25 times next year’s consensus earnings estimate. By no means is it a cheap stock. In fact, it appears to me to be valued highly enough to shift the shares into a more negative risk/reward position, at least in the short term.

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 Dividend Stocks

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

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

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 »

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 »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »