Cineplex: Scotiabank sees 58% upside for shares as demand recovers
In a note to clients Wednesday, Scotia analyst Maher Yaghi reiterated his outperform rating on the stock – the equivalent of a buy – and his $14.75 price target, arguing there are better days ahead for the nation’s largest movie-theatre operator.
“What continues to keep us bullish on Cineplex is the improving movie release schedule as we head into Q4. We expect strong box office revenues backed by multiple highly anticipated movies, including ‘Black Adam,’ ‘Black Panther,’ and ‘Avatar,’” Yaghi said.
Yaghi’s price target implies a 58 per cent upside to Cineplex’s current trading price over the next 12 months.
“Management indicated that Hollywood studios are expected to increase production rates on new theatrical releases and see renewed excitement surrounding releasing movies in theaters vs. online platforms.”
Cineplex recently reported box office revenue in August came in at 64 per cent of levels seen in 2019 – the last comparable quarter before the pandemic effectively shut down theatre operations – though there was a dearth of blockbuster films to bolster entertainment in the quarter.
The company has also been slogging through the courts to recover funds from its failed sale to Cineworld of the U.K., originally priced at $2.18 billion. Cineplex was awarded $1.24 billion in damages from the failed takeover, but Cineworld’s Chapter 11 bankruptcy filing in the U.S. has put that reward at risk.
For his part, Scotia’s Yaghi said the company should be able to navigate the current environment and may attract more retail investors, underpinning his view of potential upside.
“With the stock’s attractive valuation and our view of continued recovery in box office revenues in Q4 and 2023, we believe the recent pullback in the stock is providing a good entry point,” he said.
“As results continue to improve, and as balance sheet risk diminishes, we expect value investors to begin to take another look at the name, leading to improved performance.”