Despite Cineworld’s bankruptcy in the United States, Cineplex’s business is doing better than investors think

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Cineplex’s Q2 2022 report delivered its first profitable quarter in over two years. While a judgment payout by Cineworld would be nice, there’s no need for Cineplex shares to rise in the future.

Cineplex responds to Cineworld bankruptcy

Earlier this week, Cineplex (IS: CGX), Canada’s largest movie theater operator, officially replied Cineworld Group plc’s Chapter 11 bankruptcy filing in the US At stake for Cineplex and its shareholders is a C$1.24 billion judgment for damages caused by breach of contract.

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The C$1.24 billion prize made by the Ontario Superior Court of Justice on December 14, 2021, awarded the sum after UK-based Cineworld pulled out of its December 2019 arrangement agreement to purchase Cineplex for C$2.8 billion, a 42% bonus at its stock price at the time.

On June 12, 2020, Cineworld notified Cineplex that it had terminated the Arrangement due to Cineplex’s breach of its covenants relating to the Arrangement. Cineplex sued Cineworld for the aforementioned breach of contract. After a three-month trial, the court ruled in favor of Cineplex. The amount of the judgment was based on the synergies that Cineplex would have gained by merging with Cineworld.

Since Cineworld ended its deal, Cineplex has lost 38% of its value. It is now trading 75% below Cineworld’s $34 per share bid to buy the Canadian cinema chain.

Although Cineplex is concerned about its ability to recover all or part of the C$1.24 billion judgment against Cineworld, it is confident in the future of its business.

Confident in recovery

“Cineplex remains confident in its business recovery, its strong capital management and liquidity, and its efforts to manage financial uncertainties as it has during previous economic downturns,” said Cineplex’s press release from the September 7.

“While Cineplex was forecasting low business volumes in August and September due to pandemic-related production delays, August performed better than originally expected and the company remains optimistic about consumer demand and content offering in the fourth quarter of 2022 and in 2023.

September 9, Cineplex reported August box office results of C$36.1 million, 64% of the August 2019 box office. In July, its box office was C$65.6 million, 85% of the box office. August 2019 office.

The Cineplex box office was busy in September. On September 3, which was National Cinema Day, more than 500,000 guests saw a film in one of its 170 theaters across Canada. Attendance was the company’s best day of 2022 and the third busiest in the last five years.

The company reported considerable improvement Q2 2022 results in mid-August with 10x increase in theater attendance, a 439% increase in revenue to C$350 million and a net profit of C$1.3 million, Cineplex’s first profit since the start of the pandemic.

“Cineplex had its best quarter in more than two years, driven by an excellent slate of films and record results across our diversified businesses,” said Ellis Jacob, President and CEO of Cineplex.

However, analysts are not so confident.

In August, Scotiabank analyst Maher Yaghi lower your price target on Cineplex shares from C$1.25 to C$14.75, suggesting that Cineworld would derive virtually no value going forward.

“While it is difficult to predict what form the balance sheet restructuring will take and the potential impact on a settlement with Cineplex, we believe it is prudent at this time to remove any remaining value we had in our target price. from Cineworld,” Yaghi said in his report to customers,” Bloomberg reported on Aug. 18.

For its part, Cineplex has hired Moelis & Company to “maximize and monetize” its C$1.24 billion judgment.

Based on 63.3 million shares outstanding, even if it could only get 25 cents on the dollar, that would represent C$4.90 per share in cash on the company’s balance sheet.

Article by Will Ashworth, Fintel