Cineplex Stock: Is a Dividend Coming Soon?

man is enthralled with a movie in a theater
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Written by Karen Thomas, MSc, CFA at The Motley Fool Canada

As Canada’s largest movie exhibition and entertainment company, Cineplex (TSX:CGX) has a great opportunity today. In fact, as the pandemic is now all but over, movie goers are back in a big way. Strong first-quarter results demonstrate this and now the view is fully on the future. With the business staging a sharp recovery, could a dividend be in the not-too-distant future for Cineplex stock? Similarly, could a sharp rally be just around the corner for Cineplex’s stock price?

The momentum continued in Q1

After many glimpses of a recovery in the last year, the first quarter (Q1) of 2023 all but nailed it. Cineplex posted record results for many movie titles, with strong attendance that was up 46% compared to last year. In response, revenue increased 49% to $341 million and adjusted EBITDA soared to $20.2 million from a loss of $5.7 million in Q1 2022. If this is not a clear comeback, I don’t know what is.

Importantly, Cineplex’s whole business is performing exceptionally well. Let me remind you that Cineplex is no longer just a movie exhibition company. In fact, as of Q1 2023, Cineplex’s revenue from its other businesses such as amusement, accounted for over 30% of total revenue. This segment, which includes Cineplex’s location-based entertainment facilities and its Player One Amusement group, cannot be overlooked anymore if we want to truly assess Cineplex stock.

Onto Cineplex’s future

In addition to all of this, April demonstrated that the strong momentum is continuing. In fact, April posted attendance numbers at theatres that were at 96% of pre-pandemic levels. Also, April’s EBITDA (earnings before interest, taxes, depreciation, and amortization) was higher than the EBITDA achieved in the full first quarter AND higher than EBITDA in April 2019 (pre-pandemic). And while Cineplex’s stock price doesn’t reflect this yet, I believe it will very soon.

Also, as previously noted in my other articles, Cineplex’s diversification strategy is really bearing fruit. The growth in the amusement and gaming businesses has been staggering. The results have been so good that Cineplex has taken it up a notch, opening its first location for Cineplex Junction, a venue that houses multiple entertainment options in the same facility. This includes theatres, food, gaming, and more. The first one opened in December 2022, with a second one coming in Mississauga, Ontario, next week. This format is one which maximizes revenue per square foot.

Less reliance on movie exhibition

So, all of this is setting Cineplex up for really prosperous years ahead. I’ve gone over how Cineplex is much less reliant on movie exhibition than ever, but this implies that this business is unattractive. But the truth is the exact opposite. This business is actually a cash cow. Also, the value of the big screen has really been proven in recent years. As such, streaming companies and Cineplex are working together in many cases, using their collective resources and strengths to maximize the value of the movie business.

On the company’s earnings conference call, they gave us some interesting numbers — a hypothetical, if you will. They said that in the event that attendance would settle at 75-80% of pre-pandemic levels, Cineplex would achieve 100% of pre-pandemic EBITDA. This is due to the company’s successful diversification strategy. This would translate into $100 million of free cash flow, which could be used to pay down debt. In short order, Cineplex could hit its target debt level and could consider re-instating the dividend. And with this, Cineplex stock will have come full circle after a devastating few years.

The post Cineplex Stock: Is a Dividend Coming Soon? appeared first on The Motley Fool Canada.

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Fool contributor Karen Thomas has a position in Cineplex. The Motley Fool recommends Cineplex. The Motley Fool has a disclosure policy.

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