Cineplex Inc (CGX.TO)

(A Top Pick Jan 28/16. Up 9.26%.) Looks like 2016 movies are going to be on par with those of 2015, and it looks like 2017 is going to be even better. He likes their capital allocation. They are diversifying out of movies. They’ve now got the Rec Room, digital signage, videogame competition, and are now one of the biggest providers of gaming units for other companies.

They are developing non-theatre sources of revenue. Opened their 1^st Rec Room facility in Edmonton, and are planning a couple more in Toronto in 2017. They’ve also brought in online gaming through E gaming. Also, their Digital media side is doing quite well. Management are very good operators. They can’t control the theatre slate, but are very good at increasing how much you spend in the theatre. 3.2% dividend.

(A Top Pick Oct 29/15. Up 2.96%.) Great dividend and great operation. The company is moving away from relying just on the box office, and diversifying into things like the rec room, the entertainment centre, etc. He likes this for a long-term hold.

They are starting to run into a saturation issue. They are trying to venture into other areas – wrestling, watching gaming, and bigger entertainment complexes including restaurants. He thinks they are in fact reaching saturation.

(Market Call Minute.) He loves this company and would buy it under $50.

A consumer stock that has done very well. Very good company. They virtually have a monopoly on the movie distribution business in Canada. However, it is a very richly priced stock. A lot of the good news and gains are already priced in. The valuation, relative to some of the other well-known US theatre chains, is at a premium. He would be a little careful.

Restaurant Brands (QSR-T) or Cineplex (CGX-T)? Has owned this for some time. A great story and continues to think it will do well. However, it is fully priced, and doesn’t think he would chase it here. Hold off until there is some bad news or the market gets hit.

(A Top Pick Oct 22/15. Up 4.12%.) He loves this. It has had a great run and pays a great dividend. They nudge up the dividend every 2 years. A good reason for holding it now is that they are finishing out a fairly major CapX program over the next couple of years. When they get through that, they will probably do a big dividend increase, or a big special dividend. The movie slate is good. They are absorbing a lot more of the dollar that is being spent.

Likes their diversification, because it gives them a different source of revenue and helps to make them their own boss, rather than being at the mercy of Hollywood. Based on poor film sales, the stock has done reasonably well. Feels that the valuation is probably rich when you look at their revenues and earnings.

A lot of the revenue comes from selling ads. The chart shows this is in a consolidation pattern. Not bearish looking, just not over exciting looking pattern. He would like to see a break out which could be bullish, but in the meantime he would call it a trading or holding stock.

Cash ROE is about 35% and their ROE/PE metric is almost 3. You would think that Netflix and online video challenges would hurt them, but that doesn’t seem to be the case. He wouldn’t have a problem owning this.

This has pulled back a little because it got ahead of itself. Just reported and the negative impact was on the film slate, which they cannot control. Very good operators and do an excellent job on everything outside of the film slate. They are increasing concession spend and new formats to watch the films. They are developing the Rec Room and the entertainment sports complex which is opening in the fall. They have brought E-gaming into Canada. Their media division is doing quite well. Dividend yield of 3.14%.

*SHORT* (Pairs trade with a Long on Cinemark (CNK-N). One of the most over-owned names in Canada. It is perceived to be a recession proof business, so people are willing to pay up for that. This has largely been flat over the last 18 months. A very, very expensive stock. With this pairs trade, he doesn’t care what movies are coming down the pipe.

Three kinds of seats: with VIP you can have wine and a roast beef sandwich. You can spend a lot of money on a movie. Good dividend yield with a history of increases. Earnings reported this week so wait till they come out.

(Market Call Minute) Prefers Cinemark Holdings (CNK-N) in the US.