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Cineplex: Dividend Grower With A Strong Moat

Mar. 02, 2018 5:07 PM ETCineplex Inc. (CPXGF), CGX:CA5 Comments
Off His Game profile picture
Off His Game


  • Cineplex's stock has fallen precipitously despite a wide moat in the Canadian movie industry.
  • The stock had an impressive Q4 rebound in results and additional dividend growth to boot.
  • The industry and stock should rebound in 2018, while paying a very high yield.

Looking for a stock with quality earnings, impressive value, a large moat and a 5% yield? After a large fall during 2017 due to slowing box office numbers, Cineplex (OTCPK:CPXGF) has become an enticing value play. It is the largest theater operator in Canada, constantly diversifying itself with other media and entertainment revenues. It pays a 5.12% yield while maintaining an impressive market share and moat in Canada. As you can see on the chart below, it has outperformed AMC (AMC) significantly, coming from a place of likely overvaluation to great value. While AMC also pays a dividend yield, it is saddled with debt and does not have the diversified entertainment offerings of CPXGF. Let's take a look at what makes Cineplex a great value, starting with the financial results.

Fourth Quarter Financials

In 2017, Cineplex had $715.6M of box office compared to $992.5M for the country as a whole for a 72.1% share. This gives Cineplex pricing power when it comes to advertisement, concessions, and box office. Q4 was a great one overall for Cineplex, with the growth of the entertainment side making up for a modest box office number. Revenue for Q4 was $426.3M, which is an impressive 10.6% increase from 2016. This led to a net income of $28.79M, an increase of 23.4% against a very weak 2016 period. Attendance, on the other hand, was down 2.1% showing, while attendance is a large portion of revenue, growth can still be attained. Attendance has proven to be based mostly on the quality of the movies released, with past weak years often followed by much stronger years. This gives me significant hope for an attendance rebound for 2018. Loyalty continues to be strong for Cineplex, with the Scene program with Scotiabank (BNS) at

This article was written by

Off His Game profile picture
Don't let the name fool you. I have worked professionally in Finance in Canada for over 10 years helping clients achieve maximum alpha. I am focused on Canadian stocks, Technology and growth stocks. The key to long term returns are disruptive companies that change the landscape of their industry. I also focus on Mid-Cap companies with strong management and high growth to attain alpha. I buy swing positions as well for quality companies when they return to their longer term averages - combine technical setups with solid fundamentals to beat the market. Follow me to get notified on any new article posting - the market moves faster than ever.

Analyst’s Disclosure: I am/we are long CPXGF. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Market Storm profile picture
This is definitely not a buy for the long term. It may be good for swing trade or holding for a few months to ride the "bullish" retracements that follow the selloffs.

TTM free cash flow (the real one, not the adjusted) has been declining since Q1 2016. It is currently negative. To get their adjusted free cash flow, the company adds back capital expenditures made towards their growth initiative and also some of their operating expenses. Anyone can check any of their MD&As to verify for themselves. Their long-running dividend payment and recent share buyback programs are not sustainable if things doesn't change for their net income. And there is little hope for that given all the major headwinds facing them in the coming quarters.

After their shares fell in Aug 2017, they announced share buybacks, and this was the reason they gave in their press release: "Cineplex has concluded that the market price of Cineplex's common shares, from time to time, may not reflect the inherent value of the company and purchases of common shares pursuant to the bid may represent an appropriate and desirable use of funds."

This is a management that cares a lot about their stock price, which is good, but bad when they do it at the expense of the company's debt burden.

Open their Q3 2017 MD&A, and check why they tapped more debt from their revolving credit facility in Sept 2017; $75 million to be precise. Here to make it easy; verbatim from the MD&A: "The purpose of the increase in the Revolving Facility will be to fund new acquisitions, capital expenditures and the normal course issuer bid." (Normal course issuer bid is the technical name for share buyback).

Virtually all their cash from operations goes toward paying dividends. They are relying heavily on debt to fund their diversification effort and share buybacks. Oh, and most of their debt (83%) have variable interest rates, and interest rates are going up.

I definitely should write an article that does a real deep dive into the financials of Cineplex.
Mike Song profile picture
Financials paint a picture, but not THE picture.
Market Storm profile picture
@Mike Song

Fundamentals is THE picture, at least for long-term holders. Everything in fundamental analysis ultimately boils down to the financials of the company.
Jonnhy99 profile picture
Thanks for the writeup, I'm long cgx and I keep accumulating for the eventual runup to the high 40s. Strong management team and solid movie slate gives me confidence
Off His Game profile picture
Agreed. 2018 should be the best year on record. Sure the industry faces headwinds going forward, but at this valuation how can I say no!
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