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CGX: Can Cineplex Stock Stage a Turnaround By the End of 2022?

Cineplex stock

Cineplex (TSX:CGX) is a Canadian entertainment company that runs the largest chain of multiplexes in the country.  It operates under several brands such as Cineplex, Galaxy Cinemas, SilverCity, and so on. At last count, the company operated in 164 locations across the country and controlled 1,687 screens. It counts more than 13,000 employees on its payroll. 

In the last two years, Cineplex was in deep trouble and wrestled with multiple headwinds. The ongoing pandemic caused all of its multiplexes to close for indefinite periods. Sales figures were on a steep decline. The company’s stock price plummeted to the ground and still hasn’t quite recovered. 

In the midst of all this, the company was in talks of merging with UK-based Cineworld. However, the deal fell through due to extraneous circumstances. 

Now, Cineplex is on a path to recovery.  Let’s see if it can stage a comeback by the end of 2022.

Cineplex stock is recovering amid COVID-19

The main thing going for Cineplex is that it managed to survive the darkest period of the pandemic. The company had to slash costs and forego dividends, but it is still surviving. Cineplex sales fell from $1.66 billion in 2019 to $418.26 million in 2020. In 2021, the company reported a revenue of $656.6 million.

The road forward for the company looks much more positive than it did just 12 months ago, as most COVID-19 restrictions are relaxed.

Cineplex enjoys a leading box office market share and geographic diversity across Canada. Its business diversification and multiple revenue streams should drive future growth and reduce the company’s risk profile.

Cineplex owns an extensive portfolio of media assets with a powerful digital platform. It is also a leading amusement solutions provider in North America with robust route and distribution capabilities. Additionally, it is Canada’s largest location-based entertainment venue with a coast-to-coast presence.

Cineplex is well poised to drive customer engagement rate higher due to its customer loyalty program.

CGX stock gains post Q2 results

Cineplex recently announced its second-quarter results and reported revenue of $349.9 million, up from just $64.9 million in the year-ago period. Its theater attendance surged almost 10x from 1.1 million to 11 million in Q2 of 2022. The rise in top-line allowed Cineplex to report a net income of $1.3 million, compared to a loss of $103.7 million in the prior-year quarter.

The company’s BPP or box office per patron rose 13% year-over-year to $12.29, which was a record for the second quarter. We can see Cineplex continues to maximize sales despite certain macro-economic challenges. Its attendance in the June quarter was still 72% of 2019.

Cineplex stock is currently priced at $11.4, and the company’s shares have almost tripled since October 2020. However, Cineplex stock price is still down over 70% compared to the start of 2020. Its forecast to increase sales by 119.4% to $1.44 billion in 2022 and by 11.5% to $1.61 billion in 2023.

Despite the surge in revenue, analysts forecast Cineplex to report an adjusted loss of $0.28 per share in 2022. In 2023, its earnings might improve to $1 per share. So, CGX stock is valued at 0.87x forward sales and a price to 2023 earnings multiple of 11.8, which is quite reasonable.

But, investors will be concerned over the debt balance of $1.88 billion on Cineplex’s balance sheet. It will need to generate consistent profits to service this massive debt.

In Q2, Cineplex reported an adjusted EBITDA of $78 million. So, if its EBITDA can expand to over $300 million in the next 12 months, its debt-to-EBITDA multiple will be acceptable at 6.4x.

Cineplex stock has grossly underperformed the TSX since 2020. However, the 12-month price forecast for Cineplex stock stands at $16, which is 35% above the current trading price.

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