Friday, 11 May 2012

Cineplex Raises Dividends

Cineplex recently reported its best first quarter adjusted EBITDA (earnings before interest, tax, depreciation and amortization) result in company history. This was partly due to hit films such as The Hunger Games (which I enjoyed quite a bit) and Dr. Seuss' The Lorax.The Hunger Games had highest grossing first quarter weekend of all time and the third largest opening weekends of all time.

The company declared that it will raise the annual dividends from $1.29 to $1.35. This will be the 2nd increase since converting from an income trust to a corporation in 2011. Cineplex has the majority of the Canadian market and operates theatres under the names Cineplex Odeon, Galaxy, Famous Players, Colossus, Coliseum, SilverCity, Cinema City and Scotiabank Theatres.

As technology improves, more and more people are able to get the movie theatre experience at home. Pirating is also a contributing factor to the harsh environment. This is why Cineplex is branching out and finding other sources of revenue. For example, 3D movies and phone applications that interact with the big screen. Some screens are even set up for live shows such as sporting events and music concerts. Even video game tournaments are hosted. There's also an online store to rent and buy DVDs. Cineplex recently acquired New Way Sales Game Ltd. which is a distributor and supplier or coin-operated games (ie. arcade games).

The SCENE loyalty program is another way to help pull in moviegoers and it has personally been a deciding factor when going to the movies. Being able to get points with a credit card had me going to the theatre more often and although I went without paying for a ticket, I would buy snacks as the concessions stand (at a 10% discount with the SCENE card).

Although the movie theatre industry is dying, Cineplex seems to be positioning itself to be successful by not only improving the experience with things such as interactive games before the movie, but by evolving into more than just a company that shows films on a screen. If there's only room for one player in the game, my bet would be on Cineplex (although my confidence in the company may be due to me liking Cineplex as a consumer as opposed to looking at it as a business owner, so I'll keep a close watch on the company). The company also distributes monthly dividends as opposed to quarterly, so if you're looking for some income, that's a bonus. Personally, I'd rather have quarterly dividends because I would be able to start my DRIP with less money.

Along with the good news, there are some concerns. The payout ratio and P/E ratio are higher than I would like and the company seems to be carrying a lot of debt.

Even with all the headwinds, nothing beats the physical movie theatre experience. I mean, what's the typical date? The good old standard is dinner & a movie. Well if that's the case, as long as people keep trying to find love, Cineplex will be in business.

-the Paperboy

No comments:

Post a Comment