Thursday, October 26, 2017

A current AIM International Fund Holding: IMAX Corporation (IMAX) by Grant Runnoe. "A Hold on IMAX"

IMAX Corporation (IMAX, $50.52): “Visualizing the Future”
By: Grant Runnoe, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


  • IMAX Corporation (NYSE: IMAX) is an entertainment technology company, focusing on motion picture technologies and presentations.
  • Despite a harsh summer sales with the stock dropping nearly 48%, IMAX has recovered 20% with outstanding film slates of DunkirkSpider-Man: Homecoming and IT.
  • The company has plans to create an additional 5-8 locations to their Virtual Reality platform adding to already existing Los Angeles and New York venues.
  • Recently hired new CMO, founder of JumpLine Group.
  • Board of Directors authorized a new share repurchase program for up to an additional $200 million through June 2020.
  • Second Quarter Highlights:
o   Revenue of $87.8 million and a net loss attributable to common shareholders of $1.7 million, or $0.03 per diluted share with adjusted net income $0.15 per diluted share.
o   Achieved a gross margin of 58.5%, representing a 300 basis point improvement over 2Q16.
o   Maintain full-year 2017 installation guidance of approximately 160 new theatre systems, signing agreements for 92 new systems during the quarter across 16 countries.
o   Installed 34 systems bringing the global theatre network to 1,257 screens across 75 countries.
o   Backlog ramped to 580 systems, up 31% YoY.
o   Announced a cost-reduction exercise aimed at achieving approximately $20 million in annualized cost savings, with the goal of improving operating leverage.
o   Repurchased $46M of shares, completing the previously announced $200-million buyback program.
Key points:

IMAX is introducing a new pipeline of virtual reality. The company opened is second virtual reality center which is located in New York City (AMC Kips Bay). Noting that this location is different from their original site which is a standalone in Los Angeles. The New York site is IMAX’s first multiplex location, occupying the lobby space. This venue brings a benefit of entering a location with built-in foot traffic to the company. IMAX plans to create five to eight additional virtual reality locations in 2H17 with the next locations opening in early fall in Shanghai, Manchester, and Toronto. The agreements are one-year terms.  Management also indicated they see sizable interest in virtual reality from their partners.

IMAX has recently experienced a change in management in their Chief Marketing Official position. Ms. JL Pomeroy obtained the role in July 2017 and will be in charge of leading the company's global marketing efforts. Ms. Pomeroy founded and ran JumpLine Group, a “brand activation agency” giving her 25 years of international senior marketing experience.

Another trend IMAX is attempting to capitalize on is screen sharing. This entails two movies being played simultaneously on 400-plus foot screens. This trend attempts to capture movie goers whether friend groups or scenarios that wish to see 2 different movies. IMAX has also produced an original content television series Marvel's Inhumans to fill gaps in the release schedule.

Recent movements in IMAX:

It has been a weak summer for IMAX with the stock plummeting from $34.05 on 3/30/2017 down 7% to $17.57 on 8/23/2017. Nevertheless, the tides appear to be turning despite the inherent volatility of film sales. The motion entertainment industry is volatile based on film slates. The stock started 3Q17 strong with the showing of Dunkirk.  Spider-Man: Homecoming was also a key contributor as it opened to a $117 million global weekend, which excluded China. IT produced $123 Million in global box office on the opening weekend. These three films alone lead to IMAX’s recent month-to-date turn around boosting the stock 20%. Another positive signal is Mr. Kevin Douglas, James Douglas and Bradley Wechslers who hold the top three insider positons have all bought shares 6/14/2017. The top 5 institutional shareholder have followed increasing their shares count.  

Past Year Performance:

IMAX entered the AIM international Equity Fund on 10/31/16 at a price of $30.25 with a target price of $39.41. The stock currently trades at $22.05 representing at -28% return. The stock has hit a 53 week low of $17.57 during the tail end of August rebound a 48% decline into a 20% return primarily due to film showing of Dunkrik, Spider-Man: Homecoming and IT.

Source: FactSet

My Take Away

There is no hiding the volatility of IMAX’s stock. The company recently experienced a 6-month decline of 47% followed by a one month turnaround of 20% (primarily attributed to showings). Key releases are coming 2018 with a slate featuring Jurassic World 2, Avengers: Infinity War, Star Wars: Han Solo, and Deadpool 2. In addition to the film slate drivers, IMAX is in position to execute on new trends. Virtual Reality represents the biggest near term catalyst for the company. Already possessing a location in LA and a recent addition in NY the company plans to implement another 5-8 locations around the world, namely Shanghai, Manchester, and Toronto in 2H17. With the growth opportunity tied with the risky environment I am placing a hold on IMAX in the AIM International Equity Fund.