(I had initially written this entire draft on May 3, 2014 and forgot to hit the “Publish” button when done since I had to rush off to do something else… subsequent to this post, they announced a fairly tepid quarterly result and the stock went down to about $39/share. I have not revised the content of this post, but really, I did write this five days ago!).
Was doing some simple research today. Found this company with the following five-year chart:
Anything since 2009 has performed well, but this one has gone up nearly in a straight line by about 2.6 times – 22% compounded annually for those interested in that figure.
What’s the company? Cineplex (TSX: CGX).
Intuitively if you had presented me the equity case for this company 5 years ago I would have laughed at you – who the heck goes to movie theaters in these days with Blueray and DVD’s, home theaters, video games, and just almost anything else than sitting in a dark air conditioned room for two hours with a bunch of teenagers armed with noisy cell phones?
The answer is – more than I was expecting. The corporation in 2013 made $660 million in box office revenues and about $110 million in revenues contaminating the minds of its customers with pre-movie commercial advertising. This is in addition to other revenues selling overpriced junk food and the usual sort of things you’d expect from a theater company. At the end of the day, they booked $83 million in income, or about $1.32/share.
Balance sheet-wise, they have a little bit of debt, but it is not ridiculously high (about equal to their 2013 cash flows through operations). The corporation is still in an acquisition mode, consolidating what was previous a fragmented market of small players. As one might expect with a consolidator company, tangible book value is deeply in the negative (about $160 million negative). They pay a monthly dividend of 12 cents per share, or $1.44 annually (roughly $88 million in 2013).
So the stock, at about $41/share or a market cap of $2.6 billion (63 million shares outstanding), isn’t exactly cheap. It would have to go down considerably before I would even be remotely interested in it. But I was just amazed that this business is still afloat in the 21st century and apparently thriving. These sorts of businesses shouldn’t be surviving the internet age.
I always keep in mind to never mix my own consumer preferences with those of others. This is one classic case.
Or perhaps there is a short sale thesis here? I won’t do it, but perhaps somebody else there might look at it.