Cineplex Inc. (TSX:CGX) is Canada’s leading movie exhibition and entertainment company. Over the last few years, the pandemic really put a damper on Cineplex’s business, leaving investors shaken and running for the hills. Cineplex’s stock price is following suit.
But the good news is that the tide has officially turned. In my view, Cineplex is once again the strong, cash flow rich business that investors have loved in the past. It’s just a matter of time before they realize it. I’ve been touting the company for a long time now – ever since I noticed CGX stock’s rock-bottom, dirt-cheap valuation and its top-notch strategic moves.
Cineplex stock rallies after Q3 results
Yesterday morning, Cineplex reported record results, in what was its best quarter ever. Revenue increased 36.4% to $463.6 million, and adjusted EBITDAL (earnings before interest, taxes, depreciation, amortization, and special losses) increased 307% to $83.1 million.
In Cineplex’s movie exhibition segment, which accounts for 69% of total revenue, attendance was 90% of 2019 levels. Yet, revenue was 113% of 2019 levels, and adjusted EBITDAL was 135% of 2019 levels. This, in a nutshell, embodies the strength of Cineplex’s new and improved business.
It is through its diversification into segments such as amusement, as well as the revamping of the movie exhibition segment, that Cineplex has been able to achieve this. In the movie exhibition segment, premium offerings such as VIP movies have bumped up Cineplex’s revenue and margins. In fact, the company’s EBITDAL margin was 19.2% in the third quarter, compared to 16.1% in 2019
So, we can see that not only has a full recovery relative to pre-pandemic days occurred, the business is looking better than ever.
Cineplex sees even better days ahead
In my view, it’s clear that the cash flow machine that is Cineplex is returning. In the third quarter, Cineplex generated EBITDAL of $83 million. That’s 18% of the company’s revenue of $463.6 million.
On a related note, many investors are concerned about Cineplex’s debt-load. While this is something to keep an eye on, I don’t feel like it will be a problem for the company, as cash flows are rapidly increasing. This will translate into more debt repayments – in just the last two quarters, $55 million of debt was repaid, using 66% of the company’s EBITDAL.
CGX stock valuation
While Cineplex’s business is rapidly recovering and seeing great momentum, Cineplex stock remains below $10. Also, the stock’s valuation remains rock-bottom and dirt-cheap, trading at a mere 9 times 2024’s expected EPS. This is surprising given the rapid acceleration we have been seeing in Cineplex’s results. It’s all the more surprising given the cash flow generating power of the business.
Back in 2019, Cineplex’s stock price was trading in the mid-$20 range. As previously mentioned, Cineplex is now performing well above 2019 levels, with margins and revenue breaking records. This speaks to the strength of the company’s post-pandemic business, as well as the opportunity that lies ahead. Simply put, Cineplex is re-emerging as a stronger company than ever, with management expecting that the re-instatement of the dividend may be coming soon.
So, yes, it is my view that Cineplex stock is definitely worth buying at this time.
