Cineplex Inc. Rides The Superhero And Sci-Fi Wave To Record Results

| About: Cineplex, Inc. (CPXGF)


Cineplex Inc. sees its Q4 net income grow by 139%.

Let’s all go to the lobby, to get ourselves some stocks.

Behold the geeks have inherited the earth… well, the movie theater.

Not so long ago in a stock market not very far away lies Cineplex Inc. (OTC:CPXGF), Canada's primary movie theater chain, which for the past five years has managed to consistently boost its stock value. This has come during a time where the movie industry has been plagued by illegal downloading, legal streaming sites, Hydra and a general apathy amongst movie-goers. However, over the past couple of years something has changed to reshape the industry, the rise of sci-fi and superhero movies. Once looked down upon by the mainstream public, now thanks to the rise of Marvel's Avengers universe and the rebirth of Star Wars, the geeks have inherited the earth so to say.

This shift in movie offerings and the stream of loyal fans is proving to be a huge benefit for Cineplex and its revenues, which at one point was under threat. Let's give this some perspective, in the fourth quarter alone Star Wars in less than a couple of weeks generated 22% of Cineplex's box office revenues. The latest James Bond martini fueled adventure Spectre generated 10.8% and Matt Damon's impersonation of what Bear Grylls would do on Mars in The Martian came in at 9.2% of box office revenues. The top performer of Q4 2014 was Hawkeye's favorite tween-drama The Hunger Games Mocking Jay Part 1, which came in at 11.1%.

This is a small sample size but when we look at Cineplex's total box office revenues in 2015, we see the dominance of sci-fi and superhero films with Star Wars once again taking the number one spot with 6.1%, followed by Jurassic World with 5.5% and Avengers Age of Ultron at 4%. These are very impressive numbers especially when you consider that the number one movie for Cineplex in 2014 was Guardians Of The Galaxy which brought in 4% of box office revenues.

The times are a-changing

What these numbers show is that the paradigm of movie goers is in the midst of a galactic sized shift away from summer popcorn action movies to complete sci-fi and superhero universes. For investors this creates an alluring opportunity to take a position in Cineplex in over the next two to four years. The Disney (NYSE:DIS) half of Marvel is halfway through its projected story arc ending with the Infinity Gauntlet. While the other half of the Marvel civil war Twentieth Century Fox (NASDAQ:FOX) has rebooted the X-Men franchise, is about to finally release the long awaited, drooled over and demanded Deadpool movie, and apparently made a new Fantastic 4 movie. While over at Warner Bros (NYSE:TWX) their plans for a DC cinematic universe are finally emerging from the corporate batcave with the coming birth of the Justice League.

Then there is Star Wars, which has roared back into theaters setting records worldwide and sending die-hard and casual fans into a giddy frenzy which was only satiated through multiple trips to the theater, myself included.

What all of these franchises have in common are loyal fan bases obsessed with avoiding spoilers and are eager to be part of a sprawling plethora of movies. All of these franchises also are set to have annual or even multiple projects released each year, which should bring out fans in regular intervals. For Cineplex this creates a steadier stream of revenue as opposed to previous years where blockbusters were based on poorly received reboots and missed expectations.

Let's all head to the lobby and get ourselves some profits

Thanks to this gamma fueled shift in consumer trends Cineplex was able to post both its best ever quarterly and year end report. Revenues in Q4 2015 rose to C$407 million from C$332 million the year prior, an increase of 22%. While much of this was from Star Wars, Cineplex's net profits soared to another level as it rose by 139% to a total of C$76.8 (C$1.22 per share). Adjusted EBITDA came in at C$85.2 million up from C$62.6 million and total attendance was 20.4 million up from 19 million during last year's quarter.

Not to be outdone by these quarterly numbers, Cineplex's year end numbers are also impressive, most impressive. Revenues rose to C$1.37 billion from C$1.23 billion thanks to a 5% increase in box office revenue, an 11.6% increase in food revenues and a 23% increase from its media division (which includes pre-movie advertising) which totaled C$112 million. Net income increased to C$134.2 million (C$2.13 per share) a 76% increase over 2014's net income of C$76.3 million (C$1.21 per share). In terms of membership, Cineplex now has 7.3 million Scene Card members and total attendance in 2015 was 77 million up from 73 million in 2014. To give some perspective this is the equivalent of everyone in Canada visiting a Cineplex theater twice during 2015.

The stock's X-Factor

With increased revenues and net income being derived from the modern wave of sci-fi and superhero movies Cineplex is in a rare position among Canadian companies at the moment: its future looks bright. Many of these franchises may have the next five to 10 years planned out but no one knows how long this trend will last before viewer apathy develops among the non die hard fans. In the coming year alone we have Star Wars: Rogue One, Deadpool, X-men Apocalypse, Captain America: Civil War, Batman vs. Superman Dawn of Justice, Suicide Squad, Gambit and Dr. Strange hitting theaters. This list doesn't even include video game based projects such as Assassins Creed and World Of Warcraft, or sci-fi sequels Independence Day: Resurgence or Star Trek Beyond. This all means that now is the time to take advantage of this trend before it comes crashing back to earth in the next couple of years.

Cineplex's stock does have room to grow in the coming year as it closed on the TSX Thursday at C$47.86 and has an average price target of C$52.00. Any consideration in Cineplex should not be viewed as a long term play with perhaps a time limit of no more than three or four years, depending on how movie goers react to this summer's overwhelming array of offerings. One positive for investors considering Cineplex is its modest annualized dividend of C$1.56 with a yield of 3.23% against a fwd p/e ratio of 24.48. It isn't a knock out dividend but it is a stable option for investors looking for dividends which are not tied to the energy or banking sectors in Canada.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.