Cineplex Inc. (TSX:CGX) reported Q4 and year-end 2023 results yesterday. The results came in below expectations but there were definitely some bright spots. Let’s take a look at what investors need to know about Cineplex (CGX) stock.
Cineplex reports a net loss in Q4
A $0.14 loss per share for Cineplex’s fourth quarter was certainly a disappointment, sending CGX stock down 7% yesterday.
As Cineplex continued to struggle with lack of content, attendance has been low relative to earlier quarters of the year. Consequently, box office revenue came in at $124 million, 68% of the fourth quarter of 2019 (pre-pandemic levels).
While all of this is disappointing, there are two things to keep in mind. The first is that this was expected, as the effects of the writers’ strike on movie content linger. We have known the strike would affect the stock price and CGX has been under pressure since it began. The second is that premium experiences like VIP are making up an increasingly bigger percent of revenues, and they are now at 40% of box office revenue. These revenues are higher margin revenues.
So while EPS came in at a disappointing -$0.14, the company is recovering. As a testament to the underlying strength of the business, we can look to box office revenue per patron (BPP) and concession revenue per patron (CPP). Both BPP and CPP hit records in 2023, coming in at $12.53 and $8.90, respectively.
Full year 2023 results
The full year 2023 results offer a glimpse of what’s possible with Cineplex. In the year, revenue increased 25.9% to $1. 4 billion as attendance increased 25.8% to 47.9 million. Also, the company’s earnings before interest, taxes, depreciation, amortization, and special losses (EBITDAal) increased to 136% to $193 million. Its EBITDAal margin increased to 11.3% from 4.9%.
The writer’s strike began in May and lasted 148 days, or roughly 5 months. So film content was affected primarily in the late summer/fall months. It’s key for us to remember that these supply challenges are short-term in nature. Next year, we can expect the supply of movies to accelerate, thus paving the way for stronger attendance once again.
Refinancing and the return of Cineplex’s dividend
Management has been working hard on shoring up Cineplex’s balance sheet. To this end, the company announced a refinancing plan to optimize its capital structure. This plan will extend certain maturities, remove restrictions, and reduce the dilutive effect that the convertible debt will have on shareholders.
All of this to give management more flexibility to run the business. As the company continues to ramp up and approach pre-pandemic levels of business, its debt burden will fall, and this will pave the way for an eventual return of the dividend.
Recall that before the pandemic, Cineplex was touted as an ideal, reliable dividend payor because of the steady, reliable cash flows generated. If and when Cineplex can achieve 75% to 80% of pre-pandemic attendance levels, this would make the reintroduction of the dividend not only possible, but very likely. Management expects this will happen late this year or early next year.
The bottom line
Cineplex (CGX) stock reacted quite negatively to this earnings result, down 7% yesterday. However, for investors looking for an attractive value/turnaround stock with plenty of upside, Cineplex is worth considering.
