A leading analyst has said that he expects Cineworld, the leading cinema group in the UK and Ireland, to announce robust preliminary results in line with expectations next week (7 March).
Wayne Brown at Canaccord Genuity said: “Total revenues should increase by c.2.5%. We forecast EBITDA of £65.4m vs. consensus of £66.2m. Whilst many commentators have focused on the strength of “Skyfall” towards the end of 2012, we saw the moderate recovery in advertising, the first sign of recovery since 2008, as a key potential catalyst. If this momentum continues into FY13E, with DCM (the groups advertising JV) benefiting from the UK cinema market now being predominantly digital, then this could provide further forecast momentum not contained within our numbers.
“Whilst the prelims will not contain much by the way of new information, all eyes will be on current trading. Industry data leads us to believe that UK box office is c20-25% ahead of last year due to a strong film slate including, “Les Miserables”, “Django Unchained”, “Wreck it Ralph” to name a few.”
Brown said that the company’s FY2013E would signal a step change in growth with revenues forecast to increase by 14% vs. c3% in 2012.
He said: “The group will start to open new cinemas at an increasing rate which should translate to a boost in profits from 2014E onwards. The investment behind a new CRM and IT system should have already started to accelerate the number of Unlimited card holders and its customer database.
“The Unlimited card’s subscriber base could now be over 320,000, a rise of c15% since Jan 2012 and at a monthly fee of £14.99, could account for c.15-18% of group revenues or >22% of box office. This provides a high quality revenue stream not dependant on the film slate.”
He said that the film slate in 2013 also plays to Cineworld’s strengths, “with a lower number of major blockbusters, should drive greater admissions and boost film gross margins – we are already seeing this in Jan and Feb trading numbers”.
“The acquisition of Picturehouse has not only boosted underlying EBITDA by c£6m but should provide another avenue for site acceleration in due course,” said Brwon. “Whilst on OFT inquiry lingers, we are optimistic of a positive outcome. Acknowledging their unpredictable nature, even if Cineworld had to sell a handful of sites, this would likely not be material to forecasts and sufficient to change our view as to the strategic sense of the deal.
“The shares are trading on a 2013E PE of 12x for c12% EPS growth and 7x on an EV/EBITDA basis. On a FCF/share basis we forecast a CAGR of +38% 2011-2015E and the group can comfortably afford its 5% dividend yield. Our Quest derived target price of 350p is supported by growing returns with CFROA now 1.7x WACC. We advise buying into the prelims and take advantage of recent underperformance.”
