Interior of an IMAX Dome control room Science Centre OMNI-Theatre, Republic of Singapore (Photo credit: Wikipedia)
IMAX Corporation july 17
IMAX : NYSE : US$24.11 Buy , Target US$32.00
Two sizable JV deals signed; install guidance set to rise; reiterate BUY rating and US$32.00 target
Two separate deals for 15 JVs signed yesterday: IMAX announced two sizable JV deals yesterday – with AMC Entertainment in the US and then TGV Cinemas in Malaysia for a total of 15 JVs (with upside for an additional 10 theatres). Of the 15 JVs confirmed, at least five will be installed in 2012, which means further upside to the installation guidance which currently sits at 95-100. Based on these two announcements, as well as the mini surge in new signings we saw in the latter half of June, we can say that we expect the install guidance (out of backlog) to be raised by at least 15 theatres.
New signings maybe up to 75 YTD: Based on the recent signings as well as comments made on investor day, we estimate that total new signings are now up to 75 thus far in 2012. This is a strong signings number considering we are only halfway through the year. Recall our longer-term projections for IMAX (basis for our DCF) assumes only 100 new signings a year.
Expect strong Q2 call on July 26: We believe all this sets the stage for a strong Q2/12 call on July 26. As we highlighted in our preview note for the quarter (July 3, 2012), we are expecting an 81% EBITDA growth quarter
We anticipate a sizable upward revision to installation guidance.
Historically, the stock has responded well to increases in installation guidance and upticks in new signings.
Short positions at record highs:
We have been surprised to see that short positions in IMAX have risen sharply in recent times. Short positions have risen from a low of 2.7 MM (shares) in mid-October 2011 to 4.8 MM by the end of 2011, to 10.9 MM currently. Given the positive catalysts we expect in July and August, together with the fact that negative angles on the story seem to have been losing ground, we expect these positions to unwind, providing a further tailwind to the stock.
We value IMAX by using a DCF analysis, to arrive at our target of US$32.00 per share. We use a discount factor of 9.5%.