IMAX – UPDATE – China Bound

IMAX* (IMX : TSX : $27.36), Net Change: 0.25, % Change: 0.92%, Volume: 14,154
IMAX* (IMAX : NYSE : US$25.16), Net Change: 0.29, % Change: 1.17%, Volume: 271,612
The 800-pound gorilla’s appetite is increasing for U.S. films. Seeking Alpha highlighted Friday that China’s box office haul for 2014 is now expected to reach $4.49 billion, marking a 24.7% increase from last year’s level.

The report added that U.S. films have performed extraordinarily well in China this year, led by Captain America: The Winter Soldier with a $116 million gross. Next up, Godzilla, which set a year-to-date opening weekend record for IMAX, will open in China in two weeks with
expectations for a successful run. IMAX stands to benefit from the significant growth in China, as the company continues to become further entrenched in the world’s largest country.

Also recently, Viacom’s (VIAB) CEO Philippe Dauman stated, “Transformers: Age of Extinction is going to play to gigantic audiences in China”. The report highlighted that studio executives
took promotional tie-ins for Transformers in China to a new level in anticipation of strong response. Currently, box office forecasts for the fourth Transformers film are sitting just below the $1 billion mark.

Seeking Alpha states that a solid launch in China could bring the movie into the 10-digit zone. The film’s release date is set for June 27, 2014.

IMAX Corporation Update

IMAX : NYSE : US$28.56
Target: US$34.50

IMAX Corporation is one of the world’s leading entertainment technology companies, specializing in motion picture technologies and large-format motion picture presentations. The company’s principal business is the design and manufacture of large-format digital and film-based theater systems and the sale or lease of IMAX theater systems or the contribution of IMAX theater systems under revenue-sharing arrangements to its customers.
All amounts in US$ unless otherwise noted.

Media — Film and Entertainment
Investment highlights
Among our top picks for 2014: As we step into 2014, we have identified IMAX as one of our primary stock picks. However, we believe that much of the anticipated strength in the share price could occur in the back end of the year. Thus, our recommendation is that investors use the initial months to build a position and situate themselves to benefit from what we expect would be supportive catalysts towards the end of 2014.
 Following a flat EBITDA trend through 2010-2013 (around the $100 million level), we expect a breakout well past that point starting 2014, thereby solidifying IMAX’s growth credentials in the market. We are projecting 81% growth in EBITDA from 2013-2015, driven mainly by screen growth. 2013 was depressed due to a dip in SSTLs and modest film performance.
 Stellar film slate expected in 2015 – In our view, one of the best in recent times. This should come into focus towards the latter half of 2014.
 New initiatives likely to gain prominence – The laser projector is expected to be rolled out at the end of 2014, while the home theatre system with TCL in China is planned to be launched in 2015.
 Possible dividends/buybacks.
The 2014 film slate: We discuss the 2014 film slate in this note. Our view is that it is a line-up that can hold its own, but not necessarily one that would surprise substantially to the upside. Putting it down to numbers, we see it as a $1,050k – $1,100k PSA type slate. This compares with our long term annual PSA forecast of $1.1 million. For 2014, we are now using $1,075k. This is still stronger than our 2013 estimate of $1,040k.
Target raised from US$32.00 to US$34.50 per share: As we roll forward our valuation to 2015, our target rises by US$2.50 to US$34.50. We continue to use a DCF analysis with an 8.5% discount factor.

IMAX Corporation Seeing The Big Picture

MAX : NYSE : US$27.00
Target: US$32.00

IMAX Corporation is one of the world’s leading entertainment technology companies, specializing in  motion picture technologies and large-format motion picture presentations. The company’s principal business is the design and manufacture of large-format digital and film-based theater systems and the sale or lease of IMAX theater systems or the contribution of IMAX theater systems under revenue-sharing arrangements to its customers.

All amounts in US$ unless otherwise noted

Media — Film and Entertainment
Investment recommendation
In light of the volatility in the stock last week, we wanted to provide a clearer view as to how we think IMAX is being valued in the market, in addition to our own fundamental valuations. The objective is to identify reasonable entry and exit points, and thereby perhaps take advantage of such periods of volatility. One of the challenges we have experienced is that IMAX does not have reliable comps. Albeit from a different sector, we think using names such as Starbucks, Michael Kors, and Nike as
valuation comps shed light on pricing. We believe they share the broad investment profile of IMAX in that they represent premium brands (affordable luxuries) with EBITDA projected to swing up sharply over the next four years (on average, doubling from 2012-2016E), and are primarily international expansion stories.

As we have shown in this note, there are some interesting valuation comparisons, particularly as we extend to the outer years (2015E, 2016E). On this basis, we consider 11-12x 2014E EV/EBITDA to be very compelling entry points for IMAX;
this represents a range of $23.80 to $25.75. It is well below IMAX’s longer term forward year average of 15x and at the low end of the above listed comps.

Whenever IMAX’s share price hits these levels, we advise aggressive overweighting of the stock. On the other hand, if the trading multiples rise to Starbucks’ levels, which reside in the high end of the range, we would see the stock as being fully valued. At SBUX’s 14.9x EV/EBITDA 2014E, IMAX would be trading at $31.25, and at its 12.5x 2015E, IMAX would be trading at $34.70 per share. We value IMAX by using a DCF analysis, to arrive at our 12-month target of US$32.00 per share. We use a discount factor of 8.5%.

Q3/13 preview: We have been warning of an anticipated light film slate in Q3/13 as far back as September of last year, and we have not been disappointed; it likely ended even weaker than expected. We are looking for $12.8 million in adjusted EBITDA in Q3/13E, down 62% y/y, with revenue of $51.2 million, down 37% y/y. EPS (ops) is forecast to swing to negative territory at -$0.003, down from $0.22 in the prior year.

Walt Disney

Image representing The Walt Disney Company as ...
Image via CrunchBase

Walt Disney

(DIS : NYSE : US$63.22)
Stuck in Neverland. Walt Disney extended Robert Iger‘s tenure as CEO of the world‘s largest entertainment company to June 2016, a move that delays his planned succession for 15 months. Iger had been set to step down as CEO in April 2015 and remain chairman until 2016. He will now retain both titles until the expiration of his contract in June of the latter year, the company said on Monday.

The company cited a need for continuity and Iger‘s record of success. Analysts have long cited Chief Financial Officer Jay Rasulo and Tom Staggs, who leads the parks and resorts division, as probable replacements. This year, Disney amended its compensation plan to allow for the creation of new senior positions, such as chief operating officer or president. The company said there will be no change to the terms of Iger‘s compensation.

He earned $40.2 million in 2012 in total compensation last year, based on regulatory reporting rules, a 20% increase from the previous year. The company says 92% of his 2012 pay was performance based. A number of key goals for Disney still remain on Iger’s plate, including
completing the integration of Lucasfilm following its acquisition last year; opening a long-planned theme park in Shanghai; and turning around a troubled interactive division.

Sirius XM Canada

Yahoo! Widget
Yahoo! Widget (Photo credit: Wikipedia)

Sirius XM Canada Holdings

(XSR : TSX : $7.30)
Cash flow machine? The Globe and Mail published a bullish article on Sirius XM Canada over the long weekend, highlighting that investors and analysts are expecting good things from the company when it reports its third quarter fiscal 2013 results on Wednesday July 10.

Included in the Globe article, one of the believers in XSR, a fund manager in Montreal that specializes invalue investing, stated, ―We look at the company as being sort of a monopoly cable company into the car.‖ Adding that XSR is poised to become a free cash flow machine that should reward investors over the long haul. ―I just view this thing as gushing with cash for years and years to come and paying it out to shareholders.

Following XSR‘s latest quarterly results, released in April, Canaccord Media Analyst e highlighted that for the remainder of fiscal 2013 and 2014, he continues to look for strong growth in self pay subscribers and an improvement in ARPU. Also stating that he feels fairly confident that there is meaningful upside to the current dividend. XSR, with over 2.2 million subscribers, is Canada‘s leading audio entertainment company and broadcasts more than 120 satellite radio channels featuring premier sports, news, talk,
entertainment and commercial-free music

Macau Is Hot For These Entertainment Stocks

Official Logo of Galaxy Macau
Official Logo of Galaxy Macau (Photo credit: Wikipedia)

By George Leong, B.Comm. for Profit Confidential

Gambling is akin to trading, but with much more risk of failure. Everyone knows Las Vegas as the gambling capital of the United States, but Macau is hot and growing. Macau is designated a special administrative region of China, which means the area has the backing of the Chinese government for the purpose of casino development.

Attracted by abundant wealth and the appetite for risk and money in China and Asia, there has been a rapid move by the major casinos to establish and expand their presence on the island of Macau, China, which is the world’s largest gambling market, known in the gambling world as the “Monte Carlo of the Orient.”

I have visited this former Portuguese colony, which is located some 38 miles from Hong Kong, and there is an obvious push to build more high-end casinos, especially those integrated with hotel, retail, and casino operations. The market is primarily the China and Asia tourist market.

Much of the newer major development is along the Cotai strip in Macau, which will add to the original gambling establishments in the city.

The Cotai strip area is bustling with people armed with money to spend, and if the expansion plans are on target, it will inevitably make Vegas seem sedate in comparison.

In March, gross revenues in the Macau casino sector came in around $3.9 billion, up 25.4% year-over-year. (Source: Garlitos, K., “SLM Holdings Continue to Hold Top Revenue Spot in Macau,”, April 3, 2013, last accessed May 9, 2013.)

The prospects for Macau, China are enormous; I’m betting on that, and so are some of the world’s largest casino operators.

Two of the major players expanding their presence in Macau are Las Vegas Sands Corp. (NYSE/LVS) and China-based Galaxy Entertainment Group Limited (OTC/GXYEY).

In the first quarter, Las Vegas Sands attributed its strong growth in part to its expansion in Macau, where the company’s four Cotai strip properties attracted a record 14 million visitors. The company is a major player on the Cotai strip, which is attracting even more major players. The company’s subsidiary Sands China Ltd. reported a 39.3% year-over-year jump in net revenues to $2.0 billion in the first quarter, while earnings surged 63.3% year-over-year.

Speculating On Gambling    

But the company that I feel has excellent prospects is Galaxy Entertainment because of the fact that it’s an Asian-based company. The company is on an aggressive expansion path. Currently, it has two core properties—Galaxy Macau and StarWorld Hotel and Casino.

Galaxy Entertainment’s expansion plans are aggressive. The current development includes doubling the size of Galaxy Macau by the middle of 2015, and there are plans to launch Phase 3 and 4 at Galaxy Macau, to be completed between 2016 and 2018.

Two smaller casino players in the Macau China casino scene are Wynn Resorts, Limited (NASDAQ/WYNN) and MGM Resorts International (NYSE/MGM).


Best Buy Soldiers On

Image representing Best Buy as depicted in Cru...
Image via CrunchBase


NYSE : US$17.16
Best Buy’s fiscal fourth-quarter loss narrowed sharply as the big-box consumer-electronics retailer recorded fewer onetime
charges, although core earnings dropped as same-store sales declined.

The quarterly report came a day after Best Buy ended talks with its largest shareholder and founder, Richard Schulze, over a deal in which he and a group of buyout firms were proposing to take a minority stake in the firm in exchange for three seats on the board.

For the quarter, Best Buy reported a loss of $409 million, or $1.21 a share, versus a loss of $1.82 billion, or $5.17 a share, a year earlier. Among other items, the latest quarter included $202 million in restructuring charges, $822 million in goodwill impairments, and an $18 million gain on the sale of investments. The year-ago period included $32 million in restructuring charges, $1.21 billion in goodwill impairments and a $55 million gain. Stripping out one-time items, per-share earnings were $1.64 versus $2.18 a year ago.

Revenue was roughly flat at $16.71 billion. Analysts expected earnings of $1.54 a share on $16.34 billion in revenue. “It was a quarter that was driven, not given,” said Joly, adding that Best Buy is “intently focused on the two problems we have to solve: stabilizing and improving our comparable store sales and increasing profitability across our global businesses.”