(MENAFN- ProactiveInvestors) combined with Cinema City a year ago and is now Europe’s second largest cinema chain. The group’s resilience over the financial crisis shows how consumers keep spending on “small treats”. is expanding in the UK but its main area of growth is Central & Eastern Europe (CEE) and Israel.
2015 is set to be a stellar year for movie releases with pundits predicting the strongest cinema admission numbers for decades. The lineup includes a James Bond film a Star Wars film a Jurassic Park film and a Mad Max picture.
2015 set to look good on screen
Source: investor presentation
By contrast a relatively weak film showing in 2014 saw US cinema admissions fall to a 20-year low. saw admissions in the UK & Ireland fall by 3.7% in 2014 as the World Cup and warm weather kept moviegoers away.
Looking at long-term trends and UK cinema admissions hit a high of 1.64bn in 1946 and then fell to 54m in 1984 as TV ownership grew. The growth of the multiplex cinemas has seen admissions recover to over 150m a year from 2001.
Cinema attendance has become more expensive in the UK but if invests in its offering it should continue to get “bums on seats.” Events such as live Opera can help attract cinemagoers that aren’t interested in action movies.
In the CEE & Israel there is considerable scope for to grow as cinema admissions are low. In 2013 the UK saw 2.7 cinema admissions per capita in Poland it was only once Bulgaria 0.8 times and in Romania only 0.4 times.
saw admissions in CEE & Israel increase by 4% in 2014 due to popular local language films. Poland is ’s largest market in the region and saw a 6.8% jump in admissions due to local films and family films.
Growing in CEE & Europe
Source: investor presentation
Total screens set to increase by 20% from 2014 to 2016
Source: investor presentation
In terms of the group’s strategy and has rolled out multiplexes which were first developed in the 1960’s. Before then cinemas had only one screen and were at the mercy of whether the film they were showing was successful.
has also invested in technology with exclusivity in the IMAX format in Europe and a leading position in the UK. A recent innovation is 4DX which boosts action movies with seats that move smoke different smells and lighting effects.
The first UK cinema with 4DX: the future of cinema
Summary and valuation
The balance sheet is robust and the shares offer a combination of growth and dividend income. For 2015 the forecast P/E is 17.3X with a 2.9% yield and in 2016 the P/E is 15.7X with a 3.2% yield (the dividend is 2X covered).
Looking at the longer-term and has a forecast P/E of 13.5X in 2018 with a yield of 4.1% that is 1.8X covered. As such the medium-term story is compelling given that has already proven its mettle in a downturn.
In the trading update for 2014 the group anticipates that profit will be at the top end of the market consensus. It was particularly impressive that grew UK & Ireland revenue by 1.8% during the year despite a 3.7% fall in admissions.
The decline of cinemas has been anticipated for some time due to rising TV ownership and the rise of streaming services like Netflix. However the shift to multiplexes and strong investment has allowed UK admissions to remain stable.
The cost of a Cinema ticket is not cheap but it still offers affordable entertainment. In our view cinemas will continue to be attractive as a way to “get out of the house” meet friends and enjoy a small slice of escapism.
This report was produced by Fat Prophets Research Analyst Andrew Latto
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