US Edition Cineworld
208p -¾
Questor says BUY
Of course the group's performance depends on the output from major studios, something which is beyond the company's control. However, cinema-going in the UK remains extremely popular and Cineworld was the number one operator in the UK in 2010, with a box office market share of 26.2pc. The group has 78 cinemas and operates 801 screens.
The shares are not just a play on growth of the cinema market, but they are a sound investment for income seekers too. The shares are currently yielding a worthwhile 5.2pc – so the downside should be supported by dividend yield.
In the year to December, revenues rose 4.8pc to £342.8m and pre-tax profits moved up 0.3pc to £30.4m. Admissions over the year fell 2.1pc to 47.2m, but the average ticket price per admission rose 5.9pc to £4.99 and the average retail spend per person was flat at £1.73. These were good results given that there was considerable snowfall during the year and the World Cup was on during the summer. The trend towards 3D films, which have premium priced tickets, also helped to boost the top line.
"Customers have been prepared to pay higher ticket prices to see 3D films, even though certain sections of the customer base prefer to see 2D for cost reasons," Cineworld said.
The final dividend was raised to 7.1p from 6.8p, bringing the total for the year to 10.5p – a 5pc year-on-year increase. The final payment will be made on July 6.
Cineworld's success in 2010 was underpinned by a strong film line-up with an increased number of 3D films. Last year there were 25 3D films compared with 13 in 2009. Average ticket prices were higher because of modest general price increases and the benefit of the price uplift from 3D. Almost 28pc of market box office was from 3D for the full year, up from 12pc in 2009.
The group also has one of the largest digital estates of any cinema operator in the UK. During the first quarter of 2010 it installed 102 digital projectors and, by the end of January, it had completed the installation of a further 150 digital projectors. This means that more than half of its estate now has high-quality digital projectors.
There was also a recovery in the advertising market last year, with screen revenues up 21pc.
Last year the group signed a high-profile 25-year lease to operate the multiplex cinema at The O2 in London. It also announced an agreement for a 25-year lease for a new nine-screen cinema at the Wembley City retail and leisure development, which is scheduled to open in 2013.
The shares are trading on a December 2011 earnings multiple of 11.1, falling to 10.2 next year. The prospective yield rises from 5.2pc this year to 5.5pc in 2012 and almost 6pc in 2013, make the share attractive for income seekers.
Questor last tipped the shares at the start of the year, when they were a touch ahead of the current share price. However, they were first recommended at 120p on March 15, 2009, and they are now 73pc up on that, compared with a FTSE 100 up 57pc.