Cineplex Inc.: Does a Strong Quarter Warrant a Buy?

Cineplex Inc. (TSX:CGX) continues to grow revenue, even when it doesn’t have strong movies on the calendar.

| More on:

In the beginning of May, Cineplex Inc. (TSX:CGX) announced its quarterly results and, for the most part, they were strong. The quarter also showed Cineplex’s diversification strategy working; other parts of the business are boosting revenue and adding income to the bottom line.

In the first quarter, Cineplex had $394.2 million in revenue — up 4% from Q1 2016. This is significant because box office revenue dropped a bit to $195.4 million. The company’s excuse for the drop in revenue is because of “a tough comparator in the prior year period.” Essentially, it is saying that Q1 2016 was a particularly strong quarter, making it hard to beat. And in many respects, this is true; Star Wars: The Force Awakens was included in Q1 revenue.

But despite this, the box office revenue per patron actually increased by 3% to $9.97. Food service increased by 1.7% to $113.9 million, media revenue increased by 2.6% to a record $33.9 million, and amusement revenue increased by 58.9% to $41.4 million. Amusement revenue had such a boost because of the acquisitions of Tricorp Amusements and SAW LLC which completed in 2016. I expect the amusement division to continue providing strong revenue for the company.

All of this shows that even when Cineplex doesn’t have an immensely powerful film like The Force Awakens to draw users in, it can still continue growing its revenue, which really is an important factor. When I originally began researching Cineplex, my primary concern was that it would be difficult to consistently grow because of the company’s dependence on Hollywood to succeed. However, now that there are diversified revenue sources, I am less concerned about this.

One business I believe will help Cineplex significantly is the Rec Room initiative. According to the Q1 results, this brought in $2.1 million in food revenue and $2 million in amusement revenue. The Rec Room is basically a massive multi-purpose location that has restaurants, gaming, and other activities for businesses and families to use day and night. Unlike a movie theatre, which needs Hollywood to succeed, these are independent of a movie catalyst. There are three more Rec Rooms currently in construction which should launch in 2017, so the impact on revenue should continue to grow.

Another business that I see having an impact is the company’s media and digital arms. Thanks to sponsorships associated with its eSports business, Cineplex continues to boost its media revenues. The digital arm continues to build its customer base for digital signage. Although it’s a smaller piece of the pie, the business provides recurring income for Cineplex, which offers a semblance of predictability to cash flow.

But what really makes Cineplex quite an appealing opportunity is that it is secretly a great dividend stock. Along with its quarterly results, management announced that it is increasing the dividend by 3.7% to $1.68 per year. This is good for a 3.09% yield. And Cineplex’s dividend is paid monthly. Being able to take that income and reinvest it monthly rather than quarterly allows for quick compounding effects.

I believe Cineplex is a great business, and the numbers support that. Even without a movie as strong as The Force Awakens, it still was able to boost its revenue. And as income rises, so too does the dividend.

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 Jacob Donnelly has no position in any stocks mentioned.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »