CGX.UN – Downgrading on Share Price Appreciation. Remains a Core Holding.

admin — Tue, 05 Jan 2010 16:54:17 +0000

Sector Perform (prev. Outperform), Average Risk, Price Target: $20.00
Following recent share price appreciation, RBC CM is downgrading Cineplex from Outperform to Sector Perform. In the near-term, RBC CM sees more limited potential for share price appreciation reflecting: (1) tough YoY box office comparisons in 2010 following a record 2009 box office; and (2) the dilutive impact on equity value from the company’s $105MM of convertible debentures (which have an exercise price of $18.75). Although it sees more attractive risk-adjusted returns elsewhere in the Canadian media sector at this stage in the advertising cycle, RBC CM continues to view Cineplex as a high quality, core media holding. In the near-term, RBC CM believes the stock will perform more in line with the broader media sector and would wait for more timely accumulation points. Box office results for the final week of Q4/09 were released yesterday. On an adjusted basis (which is a more accurate reflection of Cineplex’s actual reporting period), Canadian box office results for Q4/09 were up a solid +14.9% versus a strong comparable in Q4/08 (+13.9%). The two major drivers in the quarter were The Twilight Saga: New Moon ($27.9MM) and Avatar ($27.1MM). RBC CM has updated its estimates to reflect Q4/09 box office results.

TSX Commentary » Cineplex Galaxy Income Fund

CGX.UN – Downgrading on Share Price Appreciation. Remains a Core Holding.