Cineplex: At the Movies

02/26/2014 7:00 am EST

Focus: STOCKS

David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

This Canadian cinema operator has built a fantastic track record, rooted in its 77% market share and its control of about 95% of the on-screen ad market. It also generates the highest cash-per-patron figures in the industry, explains David Dittman, editor of Canadian Edge.

Cineplex, Inc. (TSX:CGX) (OP:CPXGF) has added new revenue streams to complement its strong core movie theater operation.

Its Digital Networks unit announced a deal with North American coffee-and-donuts powerhouse Tim Hortons to launch TimsTV, which will be one of the largest digital programming networks in the Canadian restaurant and retail sectors.

Cineplex Media will sell advertising for TimsTV, opening a new channel in one of Canada's top retail destinations. It's yet another way that Cineplex is leveraging cutting-edge digital technology to generate revenue.

Cineplex has also acquired a 50% stake in YoYo's YogurtCafe, a London, Ontario-based self-serve frozen yogurt chain with stores throughout the province.

The acquisition complements Cineplex's proprietary food service brands, Outtakes Backstage Bistro and Poptopia, and is part of management's strategy to expand its in-theater food service offerings while also extending its in-house brands outside its theater.

Even as management diversifies the revenue base and makes cash flow less dependent on often-volatile Hollywood, Cineplex was buoyed by North American box office numbers in the fourth quarter, as ticket sales grew by 0.8%.

Growth was driven by franchise entries The Hunger Games: Catching Fire, Thor: The Dark World, and The Hobbit: The Desolation of Smaug, with solid contributions from one-offs (for now) Frozen and Gravity.

All five generated box office in excess of USD200 million. It was the second-best fourth quarter result ever, trailing only 2009. This is a positive sign for Cineplex's full-year results for its core operation.

Cineplex has announced dividend increases in May 2007 (4.4%), May 2008 (5%), May 2011 (2.4%), May 2012 (4.7%), and May 2013 (6.7%). History suggests an increase in May 2014 on the order of 4% to 6%.

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