Will Imax Make It?

This continues the week of "so bad they're good" stories; earlier, it was Chico's that investors finally thought had run out of bad news and begun the turnaround.

And today, I look at Imax (IMAX), a hugely disappointing stock from my portfolio, and see that it has quietly crept back up to something approximating a respectable share price.

Now, the news is not THAT good; it's still leagues away from the prices we saw a year ago, or even last August, before it announced that the four rumored suitors for the company weren't interested after all... or at least, not interested at its price (and all the analysts climbed over each other pressing the "sell" button).

I wrote a fair amount about Imax at the end of last year, noting how I had misjudged the company and that I also believed a fair price had to be a fair tick above where it was then trading, down at about $3.50, assuming you didn't believe the company was headed toward bankruptcy. Unfortunately, I didn't put my (additional) money where my mouth was at the time, since the earnings miss had forced a plunge in price from $5 to $3.50, and here, four months later, the shares are going for about $5 again.

And still, I think $5 is too cheap... but I'm just letting my investment ride. I'm still nervous, primarily about management, and am certainly not putting any more money into this management team.

But the recovery from last fall has been fairly quiet: The company effectively took itself off the market and said it would grow on its own, which means I expect we won't be trading on those buyout rumors anymore (though one never knows - maybe the private equity guys will be back once they've bought everything they actually like).

And the news has been positive, but mild this quarter; some new installations and orders, particularly overseas, and some buzz about the potential for its Hollywood flicks this year (the Spartan fight flick 300 had a surprisingly great opener on Imax, and Spiderman 3 and another Harry Potter are on the way. That will almost certainly be a nice step up from the series of flops it lucked into last year, including V for Vendetta and Poseidon).

But the biggest news so far came today -- big(ish) new deals with U.S. theater chains, which haven't exactly been closing deals in bunches of late. Imax will now be opening five theaters with Dickinson in the Midwest, and one each in California, Florida and Oregon for Regal (RGC).

While the installation backlog even as of the terrible earnings release last November was decent, it's nice to see new deals, and especially nice to see that it expects at least three of those theaters to open this Spring. Imax still makes money mostly on the installations, so the more of those we see actually coming to completion the more will flow to the bottom line.

And it's a little bit of a network effect - the bigger the installed base, the more competing chains need to show they can get their Imax on, too - and we get into economies of scale, since Imax is still working from a pretty tiny installed base. The more theaters to distribute to, the cheaper it is to remaster, market and distribute its films. It doesn't take all that much to show good growth when you start out tiny.

The fates seem to be gathering - the share price is low, contrarians can look at a slate full of sells and holds from the analysts and a pretty big short ratio, the box office should be great this year on the back of some blockbusters, the theater owners are showing a little confidence and placing orders for new systems again ... is anyone else waiting for the other shoe to drop?

Disclosure: I own shares of IMAX.

IMAX 1-yr chart

Comments

[East Coast:]

The management team is terrible. I bought in at 3.42 and sold half at 5.28 and the other half at 5.15, a few days before earnings were due - why? Despite a nice chunk of theatre signings since Nov, I had absolutely no faith in them and expected the worst. Sure enough, they're threatened with Nasdaq delistment.

2007 Apr 11 11:30 AM

[Daniel Vachon:]

I guess Travis you need some help to see the futur of 3-D let me help you....

3-D: The future of film lies this way

Moviegoers were able to watch the blockbuster Superman Returns in 3-D and on the giant IMAX screen last summer.
Shades of Smell-O-Vision
Sure, we may be on the cusp of a 3-D revolution, but the next-next stage in the moviegoing experience may be just around the bend.

Derek Tse
Apr 14, 2007 04:30 AM
Bruce DeMara
Entertainment Reporter

Coming soon to a theatre near you, 3-D – the technology behind the laughable 1950s gimmick with the goofy red-blue glasses – is poised to change the face of filmmaking.

With world-class directors like Peter Jackson, Robert Zemeckis, Stephen Spielberg, George Lucas and James Cameron clamouring to get on board, and studio moguls like DreamWorks chief executive Jeffrey Katzenberg extolling the virtues of the vastly improved technology, 3-D may become the vehicle that keeps movie houses humming in the years ahead.

Adina Lebo, spokesperson for the Canadian Motion Picture Theatres Association, goes so far as to call 3-D a major part of a "renaissance" in filmmaking at a time when box offices are competing for the consumer dollar with home entertainment, video games and other leisure pursuits.

"It is a very competitive market and everybody is looking for ways to compete for the public's entertainment dollar and their time," Lebo said.

"It's a renaissance. (A 3-D film) is more compelling, more intense...and immersive. It puts you in the 3-D world of the film, wherever that is."

The evidence for an emerging new age in 3-D filmmaking is stacking up:

Cameron has publicly stated he intends to make all of his future films in 3-D. His latest live-action project, Avatar, set for release in 2009 by Twentieth Century Fox, reportedly has a budget approaching a titanic $200 million.

Zemeckis' animated film version of Beowulf is set for release in November, while in 2008 New Line will release Journey 3-D, a live action film about a trip to the centre of the Earth.

Lucas has announced plans to release 3-D versions of his Star Wars films. Jackson and Spielberg are both planning films in 3-D.

IMAX Corporation, which has developed its own version of 3-D, has reported major success – with the release of documentaries and films like Space Station and a 3-D version of Polar Express – and as a result has dramatically improved its bottom line in the past few years.

Theatres are increasing their capability to screen 3-D features, as evidenced by Chicken Little, which debuted on 84 screens in 2005, a 3-D version of Tim Burton's Nightmare Before Christmas that opened last October on 187 screens and last month's release of Disney's Meet The Robinsons, which premiered on 581 screens.

At a time when theatres across North America and the world are converting from 35-mm projection systems to digital, new 3-D systems are affordable and easily adaptable to the new digital technology.

And while animation has, up to this point, been relatively easy to convert to a 3-D format, industry insiders forecast that live-action 3-D films are around the corner.

"I personally believe that the future of 3-D ... is taking live-action Hollywood films and converting key pieces of them to 3-D," said Greg Foster, president of filmed entertainment for IMAX, pointing to last year's release of Superman Returns –where four action segments comprising 20 minutes of the film were converted to 3-D – as a major breakthrough.

While remaining coy, Foster promised the corporation will announcing future IMAX 3-D releases in the near future.

Pat Marshall, spokesperson for Cineplex Entertainment – Canada's largest theatre chain – said the positive audience reaction to the small number of its theatres that have 3-D capability shows the technology is "an important part of the future for us."

"The fact that so many filmmakers, especially of the calibre of James Cameron ... say they want to make their films in 3-D bodes very well for the technology," Marshall said, noting the chain has converted four theatres to RealD technology so far.

Marshall and Lebo say 3-D technology has applications beyond film.

As movie chains continue to expand their business by incorporating "alternative programming" in their theatre spaces – such as live sports and concerts – testing has already begun on converting them into the 3-D format.

Marshall said an NBA game brought to a test audience in 3-D was enthusiastically received and Lebo said the ShoWest convention in Las Vegas for industry leaders featured a U2 concert in 3-D.

That creates a huge potential to bring Broadway shows, opera and dance into the movie theatre space, they say. The sky really is the limit.

As Lebo said, "Could you imagine 3-D performing arts from around the world coming to a movie theatre on your choice? It's quite interesting times."

Now Imax was able to getconsent from Bondholders (creditors) on friday IMAX's shorts start covering big time....the shares are due for bouncing back nicely in 2007-2008 because IMAX plan to install 20-30 JV and 40-50 Digital center in 2008....IMAX with his new MPX Technolgy you can Install 3-D almost anywhere....guess how many multiplex around the world????

"Based on our initial discussions with financial advisors and exhibitors, we hope to sign between 20 and 30 JVs per year in 2007 and 2008 and then increase that rate as we transition to a digital projection systems to around 40-50 per year. The digital system should lower the cost of our contributions by at least $100,000, and as Brad discussed allow us to show more films and give our exhibitor partner much more operating flexibility. Because of the film flexibility, the digital system should materially increase the revenues per theater. "

Finally....looking at market value of $184M and lost of over $300M value in last year for a $2.5M error in accounting is quiet "IRRATIONAL" like Greenspan use to say LOL

I guess Mr Market "OVER REACT"??? Right?? LOL

"The company, along with PricewaterhouseCoopers... is looking into about $2.5 million in accounting errors from 2001 to 2006 related to expenses incorrectly accounted for as capital costs."

NEXT LEG IS UP....and IMAX will do very well in 2007 and I guess someone soon or later will make an offer for $10 US before it goes to $30-$40 like 4-5 years ago

Dan

2007 Apr 14 11:08 AM