Cineplex (TSX: CGX) is well known by most, with Cineplex movie theatres being a staple of the Canadian entertainment landscape. But did you know that this Canadian stock also owns and operates amusement and leisure (gaming) complexes and is involved in the media industry?
If not, that’s okay, but I’d like to fill you in. It is the combination of these businesses that gives me confidence in the Cineplex story and Cineplex stock. Let’s take a look.
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Cineplex: An increasingly diversified business
Let’s take a look at Cineplex’s business, focusing on the level of diversification that exists and the growth areas. Cineplex’s film entertainment and content business accounts for 80% of total revenue. Its media business, which includes in-theatre advertising, accounts for approximately 10% of total revenue, and the amusement and leisure business accounts for the remaining 10%.
In terms of earnings, we have a different story. This is where we can see the strength of Cineplex’s seemingly less important businesses from a revenue standpoint. Earnings before interest, taxes, depreciation, amortization, and special losses, or EBITDAal, is a metric that management focuses on in order to get at the bottom-line performance and trends of its continuing operations.
From an EBITDAal perspective, Cineplex’s business looks like this:
- Film Entertainment and Content accounts for 51% of total EBITDAal
- Media accounts for 38% of EBITDAal
- Amusement and Leisure accounts for 11% of EBITDAal
August box office numbers
Let’s move on by reviewing the latest box office numbers, which remain very important for Cineplex. In August, the company reported strong box office results that were boosted by a strong movie slate, with movies such as Weapons and The Fantastic Four showing really strong performances. Yet, Cineplex remains a cheap stock stuck under $12.
In August, box office revenue totalled $49 million, 88% of 2019 levels. Over five months prior to the August report, box office revenue was 87% of 2019 levels and 111% of 2024 levels. It’s clear to me that this segment, which the market seems to have pretty much discounted as a drag, is recovering and has the potential to return to its days of being a big cash flow generator for the company.
Cineplex’s location-based entertainment
This business does not get enough attention from investors, in my view. These locations combine dining, amusement, and entertainment, and they’re proving to be very popular. Cineplex currently has 16 locations across Canada.
Financially, this segment is performing really well. Revenue in 2024 was $129 million, up from $79 million in 2019. The segment’s EBITDal was $30 million vs $17 million in 2019, with a 23.3% margin. Finally, the company has big growth plans for this segment, with a goal to double revenue and EBITDAal through additional locations and concepts.
The bottom line
Cineplex stock has an overhang that still exists from the days of the pandemic. As I have discussed in this article, I do not believe this overhang and negative sentiment on the company is justified. This unjustifiably cheap Canadian stock currently trades at 16 times next year’s earnings.
