One of my biggest investment regrets of recent times was deciding to sell out of Cineworld Group (LSE: CINE) a couple of years back. Its share price has risen 20% since then and I can see plenty more progress being made in the months and years ahead.
Indeed, the FTSE 250 cinema operator’s earnings outlook is much better now than when I last held shares in it thanks to its transformative acquisition action in the US. And I don’t ever plan to sell out of the business again.
Stateside sales powering higher
It’s impossible to underestimate the pulling power that the modern blockbuster, and particularly those from Disney and its satellite studios like LucasFilm and Marvel, have for the public at large. They’ve powered global box office takings to the stars over the past decade, and latest trading numbers from Cineworld again illustrated their stunning impact.
On a pro-forma basis total admissions across the Cineworld group rose 5.9% in the period spanning January 1 to November 11, it was announced last week, a result that pushed corresponding box office revenues 10.7% higher.
Sales growth was highest in the US thanks to “a strong film slate,” Cineworld said, with Marvel Studios once again providing the rocket fuel with titles such as Black Panther, Avengers: Infinity War and Ant-Man and the Wasp. As a consequence Stateside box office revenues boomed 12.4% year-on-year.
Cineworld’s $3.6bn acquisition of Regal Entertainment in the spring, a move that transformed the business into the world’s second-largest cinema chain, is proving to be a masterstroke, I believe. Revenues growth in the US is leaving the company’s other geographies for dead (box office sales in the UK and Ireland, and the rest of the world, rose by a decent-but-far-more-modest 6.4% and 5.8% respectively in the reporting period).
And Cineworld is building its American operations in recognition of this market’s exceptional earnings potential, the company — along with industry rival Cinemark Holdings — buying out AMC Entertainment’sremaining stake in cinema advertising giant National CineMedia in the summer.
5% dividend yields!
It comes as little surprise that City analysts are expecting profits to keep growing at a stratospheric rate at Cineworld. Following the Regal Entertainment deal, a 166% bottom-line rise is predicted for 2018. A further 22% earnings improvement is anticipated for next year too.
And in all probability, profits should continue sprinting forwards as the firm’s US odyssey moves through the gears; as the business pursues its screen expansion programme in the UK and across Europe; and critically, as Hollywood’s conveyor belt of superhero and space warrior movies keeps on keeping on.
This means that dividends at the screen star look set to continue pumping higher long into the future. And in the meantime investors can sit back and bask in projected payouts of 11p per share for 2018 and 13.6p for next year, figures that create jumbo yields of 4.1% and 5% respectively.
Right now Cineworld can be picked up for a forward P/E ratio of 13.2 times. I feel such a valuation is ludicrously low for a share of this calibre and provides plenty of upside for shareholders to enjoy in the years ahead.