Intrinsic value of Cineplex Inc. - CGX

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$53.52

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$53.52

 
Intrinsic value

$36.64

 
Up/down potential

-32%

 
Rating

sell

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CGX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.80
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,478
  1,508
  1,542
  1,582
  1,626
  1,676
  1,730
  1,789
  1,852
  1,921
  1,995
  2,074
  2,158
  2,248
  2,343
  2,444
  2,551
  2,664
  2,784
  2,911
  3,045
  3,186
  3,335
  3,491
  3,657
  3,831
  4,014
  4,207
  4,410
  4,624
  4,848
Variable operating expenses, $m
 
  1,325
  1,354
  1,386
  1,423
  1,464
  1,508
  1,557
  1,610
  1,666
  1,727
  1,711
  1,780
  1,854
  1,933
  2,016
  2,105
  2,198
  2,297
  2,401
  2,512
  2,628
  2,751
  2,880
  3,017
  3,160
  3,312
  3,471
  3,638
  3,814
  4,000
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,352
  1,325
  1,354
  1,386
  1,423
  1,464
  1,508
  1,557
  1,610
  1,666
  1,727
  1,711
  1,780
  1,854
  1,933
  2,016
  2,105
  2,198
  2,297
  2,401
  2,512
  2,628
  2,751
  2,880
  3,017
  3,160
  3,312
  3,471
  3,638
  3,814
  4,000
Operating income, $m
  127
  183
  189
  196
  203
  212
  221
  232
  243
  255
  268
  363
  378
  393
  410
  428
  446
  466
  487
  509
  533
  558
  584
  611
  640
  670
  702
  736
  772
  809
  848
EBITDA, $m
  233
  313
  320
  329
  338
  348
  359
  372
  385
  399
  414
  431
  448
  467
  487
  508
  530
  553
  578
  605
  632
  662
  693
  725
  760
  796
  834
  874
  916
  960
  1,007
Interest expense (income), $m
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50
  53
  57
  61
  64
  68
  73
  77
  82
  87
  92
Earnings before tax, $m
  109
  167
  173
  179
  186
  193
  201
  210
  220
  231
  242
  335
  348
  362
  376
  391
  408
  425
  443
  462
  483
  504
  527
  551
  576
  602
  630
  659
  690
  722
  756
Tax expense, $m
  31
  45
  47
  48
  50
  52
  54
  57
  59
  62
  65
  90
  94
  98
  102
  106
  110
  115
  120
  125
  130
  136
  142
  149
  155
  163
  170
  178
  186
  195
  204
Net income, $m
  80
  122
  126
  131
  136
  141
  147
  154
  161
  168
  177
  245
  254
  264
  275
  286
  298
  310
  323
  338
  352
  368
  384
  402
  420
  439
  460
  481
  504
  527
  552

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  34
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,728
  1,729
  1,769
  1,814
  1,865
  1,922
  1,984
  2,051
  2,124
  2,203
  2,288
  2,378
  2,475
  2,577
  2,687
  2,803
  2,925
  3,055
  3,193
  3,338
  3,492
  3,653
  3,824
  4,004
  4,193
  4,393
  4,603
  4,825
  5,057
  5,302
  5,560
Adjusted assets (=assets-cash), $m
  1,694
  1,729
  1,769
  1,814
  1,865
  1,922
  1,984
  2,051
  2,124
  2,203
  2,288
  2,378
  2,475
  2,577
  2,687
  2,803
  2,925
  3,055
  3,193
  3,338
  3,492
  3,653
  3,824
  4,004
  4,193
  4,393
  4,603
  4,825
  5,057
  5,302
  5,560
Revenue / Adjusted assets
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
  0.872
Average production assets, $m
  678
  690
  706
  724
  745
  767
  792
  819
  848
  880
  914
  950
  988
  1,029
  1,073
  1,119
  1,168
  1,220
  1,275
  1,333
  1,394
  1,459
  1,527
  1,599
  1,675
  1,755
  1,838
  1,927
  2,020
  2,118
  2,221
Working capital, $m
  -220
  -256
  -262
  -269
  -276
  -285
  -294
  -304
  -315
  -327
  -339
  -353
  -367
  -382
  -398
  -415
  -434
  -453
  -473
  -495
  -518
  -542
  -567
  -594
  -622
  -651
  -682
  -715
  -750
  -786
  -824
Total debt, $m
  412
  429
  452
  478
  507
  540
  576
  615
  657
  702
  751
  803
  858
  918
  981
  1,047
  1,118
  1,193
  1,272
  1,356
  1,444
  1,537
  1,636
  1,739
  1,848
  1,963
  2,085
  2,212
  2,346
  2,487
  2,636
Total liabilities, $m
  979
  996
  1,019
  1,045
  1,074
  1,107
  1,143
  1,182
  1,224
  1,269
  1,318
  1,370
  1,425
  1,485
  1,548
  1,614
  1,685
  1,760
  1,839
  1,923
  2,011
  2,104
  2,203
  2,306
  2,415
  2,530
  2,652
  2,779
  2,913
  3,054
  3,203
Total equity, $m
  749
  733
  750
  769
  791
  815
  841
  870
  901
  934
  970
  1,008
  1,049
  1,093
  1,139
  1,188
  1,240
  1,295
  1,354
  1,415
  1,480
  1,549
  1,621
  1,698
  1,778
  1,863
  1,952
  2,046
  2,144
  2,248
  2,357
Total liabilities and equity, $m
  1,728
  1,729
  1,769
  1,814
  1,865
  1,922
  1,984
  2,052
  2,125
  2,203
  2,288
  2,378
  2,474
  2,578
  2,687
  2,802
  2,925
  3,055
  3,193
  3,338
  3,491
  3,653
  3,824
  4,004
  4,193
  4,393
  4,604
  4,825
  5,057
  5,302
  5,560
Debt-to-equity ratio
  0.550
  0.580
  0.600
  0.620
  0.640
  0.660
  0.680
  0.710
  0.730
  0.750
  0.770
  0.800
  0.820
  0.840
  0.860
  0.880
  0.900
  0.920
  0.940
  0.960
  0.980
  0.990
  1.010
  1.020
  1.040
  1.050
  1.070
  1.080
  1.090
  1.110
  1.120
Adjusted equity ratio
  0.422
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  80
  122
  126
  131
  136
  141
  147
  154
  161
  168
  177
  245
  254
  264
  275
  286
  298
  310
  323
  338
  352
  368
  384
  402
  420
  439
  460
  481
  504
  527
  552
Depreciation, amort., depletion, $m
  106
  131
  132
  133
  135
  136
  138
  140
  142
  144
  147
  68
  71
  74
  77
  80
  83
  87
  91
  95
  100
  104
  109
  114
  120
  125
  131
  138
  144
  151
  159
Funds from operations, $m
  148
  253
  258
  264
  270
  277
  285
  293
  303
  313
  323
  312
  325
  337
  351
  366
  381
  397
  415
  433
  452
  472
  494
  516
  540
  565
  591
  619
  648
  679
  711
Change in working capital, $m
  -18
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
Cash from operations, $m
  166
  270
  264
  270
  278
  286
  294
  303
  313
  324
  336
  326
  339
  353
  367
  383
  399
  417
  435
  454
  475
  496
  519
  543
  568
  594
  622
  652
  682
  715
  749
Maintenance CAPEX, $m
  0
  -48
  -49
  -50
  -52
  -53
  -55
  -57
  -59
  -61
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -151
New CAPEX, $m
  -106
  -13
  -16
  -18
  -20
  -23
  -25
  -27
  -29
  -31
  -34
  -36
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -88
  -93
  -98
  -103
Cash from investing activities, $m
  -135
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -107
  -112
  -118
  -123
  -129
  -135
  -142
  -149
  -156
  -165
  -172
  -181
  -190
  -200
  -209
  -219
  -231
  -242
  -254
Free cash flow, $m
  31
  209
  199
  202
  205
  210
  215
  220
  226
  232
  239
  225
  233
  241
  250
  260
  270
  281
  293
  305
  318
  332
  346
  362
  378
  395
  413
  432
  452
  473
  495
Issuance/(repayment) of debt, $m
  70
  20
  23
  26
  29
  33
  36
  39
  42
  45
  49
  52
  56
  59
  63
  67
  71
  75
  79
  84
  88
  93
  98
  104
  109
  115
  121
  127
  134
  141
  148
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  68
  20
  23
  26
  29
  33
  36
  39
  42
  45
  49
  52
  56
  59
  63
  67
  71
  75
  79
  84
  88
  93
  98
  104
  109
  115
  121
  127
  134
  141
  148
Total cash flow (excl. dividends), $m
  99
  229
  221
  228
  235
  242
  250
  259
  268
  277
  288
  277
  288
  300
  313
  327
  341
  356
  372
  389
  407
  425
  445
  465
  487
  510
  534
  559
  586
  614
  643
Retained Cash Flow (-), $m
  18
  -15
  -17
  -19
  -22
  -24
  -26
  -29
  -31
  -33
  -36
  -38
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -109
Prev. year cash balance distribution, $m
 
  31
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  245
  205
  209
  213
  218
  224
  230
  237
  244
  252
  238
  247
  257
  267
  278
  289
  301
  314
  327
  342
  357
  372
  389
  407
  425
  445
  466
  487
  510
  534
Discount rate, %
 
  5.10
  5.36
  5.62
  5.90
  6.20
  6.51
  6.83
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.27
  12.89
  13.53
  14.21
  14.92
  15.66
  16.45
  17.27
  18.13
  19.04
  19.99
  20.99
PV of cash for distribution, $m
 
  233
  184
  177
  170
  162
  153
  145
  136
  127
  118
  99
  91
  82
  74
  66
  58
  50
  43
  36
  30
  25
  20
  16
  12
  9
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Cineplex Inc. operates motion picture theatre circuits in Canada. It operates through two segments, Exhibition and Media. The company engages in various businesses, including theatrical exhibition, food services, gaming, alternative programming, Cineplex digital solutions, and the online sale of home entertainment content through CineplexStore.com and on apps embedded in various electronic devices. It also offers pre-show, show time, magazine, and lobby advertising services; and designs, installs, and operates digital signage networks. The company operates theatres under the Cineplex Odeon, SilverCity, Galaxy Cinemas, Colossus, Coliseum, Scotiabank Theatres, Cineplex Cinemas, Cineplex VIP Cinemas, Famous Players, and Cinema City, as well as the UltraAVX, Poptopia, and Outtakes brands. As of July 7, 2016, the company operated 162 theatres with 1,659 screens. Cineplex Inc. was founded in 2003 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  Cineplex Inc. (CGX)

Valuation Ratios
P/E Ratio 42.5
Price to Sales 2.3
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 20.5
Price to Free Cash Flow 56.7
Growth Rates
Sales Growth Rate 7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.3%
Cap. Spend. - 3 Yr. Gr. Rate 11.3%
Financial Strength
Quick Ratio 11
Current Ratio 0
LT Debt to Equity 54.6%
Total Debt to Equity 55%
Interest Coverage 9
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 6.5%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 67.2%
Gross Margin - 3 Yr. Avg. 66%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 17%
Operating Margin 8.5%
Oper. Margin - 3 Yr. Avg. 10.1%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. 9.2%
Net Profit Margin 5.4%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. 23.9%
Payout Ratio 126.3%

CGX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CGX stock intrinsic value calculation we used $1478 million for the last fiscal year's total revenue generated by Cineplex Inc.. The default revenue input number comes from 2016 income statement of Cineplex Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CGX stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.1%, whose default value for CGX is calculated based on our internal credit rating of Cineplex Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cineplex Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CGX stock the variable cost ratio is equal to 88%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CGX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.7% for Cineplex Inc..

Corporate tax rate of 27% is the nominal tax rate for Cineplex Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CGX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CGX are equal to 45.8%.

Life of production assets of 14 years is the average useful life of capital assets used in Cineplex Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CGX is equal to -17%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $749 million for Cineplex Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 63.813 million for Cineplex Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cineplex Inc. at the current share price and the inputted number of shares is $3.4 billion.


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The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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