Cineplex plans buyback amid box office blues
Eyes 10% of outstanding shares over year
Cineplex Inc. could buy back and cancel as much as 10 per cent of stock held by public investors, a move that comes after a fall in the company’s share price and following a rough summer at the box office for the entire movie theatre industry.
Toronto- based Cineplex, which owns nearly 80 per cent of the Canadian movie theatre market share, said that the Toronto Stock Exchange had accepted its notice of intention to make a normal course issuer bid, and that the company is setting up an automatic “securities purchase plan” tied to the buyback.
“The Board of Directors of Cineplex has concluded that the market price of Cineplex’s Common Shares, from time to time, may not reflect the inherent value of the company and purchases of Common Shares pursuant to the bid may represent an appropriate and desirable use of funds,” Cineplex said Tuesday in a release.
Cineplex s hares have dropped about 24 per cent since the start of the year.
Starting Thursday and ending Sept. 6, 2018, Cineplex could buy up to 10 per cent of its total public float of common shares. Cineplex can do so by purchasing 36,798 shares per trading day, excluding a once-a-week exemption that would allow the company to exceed that amount.
“We don’t think the full buyback will be executed, but share purchases will be made to help support the depressed stock which still could see downside pressure as the Q3 box office continues to materially disappoint and consensus expectations are poised for significant downward revisions over the next month as they better adjust to the reality of Q3 weakness,” said National Bank Financial analyst Adam Shine in a research note.
The buyback also follows a sleepy summer at the box office for Cineplex — which had reportedly offered discounted tickets for the last week of August — and its peers. The Aug. 25 to 27 weekend was the worst in more than 20 years, Raymond James said last week, and the North American Labour Day weekend box office performance was down 36.6 per cent from 2016. Box office results are down 6.3 per cent for the year, Raymond James reported, to approximately $7.58 billion.
National Bank said North American movie theatre stocks had been down an average of 29.9 per cent in 2017, compared to a 0.6-percent drop in the S&P/TSX.
Cineplex has been trying to diversify away from the movie business, which is dependent on Hollywood to make films the public will pay to see. To that end, Cineplex has opened up two of its Rec Room locations, which are filled with bars and games.
The company has also announced a partnership with Dallas-based Topgolf to open up venues that would allow customers to play microchipped golf games.
Cineplex reported higher costs in the second quarter, partly due to its diversification efforts, but also on the back of the weak film slate.
“Poor performance at the box office, driven by poorlyconceived sequels released during the latter half of Q2, played a major role in undermining Q2 results which also featured underperformance in concessions,” said Shine. “For Cineplex, Q2 was also highlighted by material declines in both of its Media units as well as start-up costs for The Rec Room.”
A stronger second- half slate of films beckons for Cineplex, as big- name films from franchises such as Star Wars and the Justice League are still scheduled to premiere.