Now Playing: Big-Screen Dividends

05/10/2011 12:28 pm EST

Focus: STOCKS

John Snowden

Contributor, The IRS Report

Leading UK cinema chain Cineworld is getting ready to reward shareholders with a generous payout , writes John Snowden in The IRS Report.

The top UK cinema operator, Cineworld (London: CINE), is an industry leader with good growth prospects and an attractive dividend. The shares have drifted a bit lower of late, but I do not think they will get much cheaper.

The group was founded in 1995 by the current CEO, Steve Weiner. He has 41 years of experience in the industry, rising from lowly beginnings as a cinema usher in the US through the ranks to end up as vice president for Cineplex Odeon in New York City.

Weiner moved to Warner Brothers Europe in 1991 and became managing director, and then left in 1995 to found Cine-UK Ltd.

Having built up a chain of 34 cinemas, he was taken out by a bid from Blackstone in 2004, but remained as chief executive of the group. Blackstone worked closely with the management team to help accelerate growth and develop the digital media side of the business.

The group went public in May 2007, with Blackstone remaining the largest single shareholder. Today, Weiner is also a non-executive director of Digital Cinema Media Ltd, the screen advertising company 50% owned by Cineworld.

In November, Blackstone sold its remaining 20.1% stake to institutions at 205 pence a share. Matthew Tooth, who is managing director of Blackstone Group International, remains a nonexecutive director of Cineworld.

The shares look good value, as the annual results announced in March confirmed steady progress. Turnover increased to £342.8 million from £327.1 million, and pre-tax profits inched up to £30.4 million from £30.3 million.

The proposed final dividend was lifted to 7.1 pence from 6 pence, making 10.5 pence for the year. [At the recent share price of 206.75 pence, the trailing annual dividend yield works out to 5.1%—Editor.]

Income seekers please note: subject to approval, the final dividend will be paid on July 6 to shareholders of record as of June 10.

Since the results, I have seen some negative comments saying that Cineworld could be a casualty of the UK recession. I would question this, as so far weather conditions seem to have been the main negative factor.

The snow in December hit both box office and retail revenues during the festive period. Since then, annual attendance figures and box office revenues were up 4.1% on the year. Seven out of eight brokers following the stock maintain a Buy rating.

At the end of 2010, the group estate had increased to 78 cinemas with 801 screens. More than 50% are digital with 3D capability, and a steady conversion program is under way for the rest. The group wants to expand, but caution is the word until there are further signs of an end to the recession and finance for developments becomes more readily available.

As well as gaining the recent acclaim as No. 1 cinema operator in the UK for 2010, Cineworld is the market leader in showing a wide variety of content, such as Indian films and live events. These include opera, ballet, and rugby in 3D. The group operates the only cinema subscription service in the UK, the Unlimited Card.

In April, the group acquired Cinesur Circuito Sanchez-Ramada, Spain's fifth largest cinema group, for €18.6 million. Cinesur has 11 multiplexes and 136 screens and produces €800 million in annual revenue. This looks like a logical expansion, especially considering the huge number of British expats living in the region. Amid the recession in Spain, a trip to the cinema is a relatively inexpensive outing to shut out the real world for a few hours.

Cineworld looks a solid company with solid prospects given exciting new films such as The King's Speech, new Harry Potter and Sherlock Holmes films and more than 30 3D films scheduled for release in 2011.

Subscribe to The IRS Report here...

Related Articles on STOCKS