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.
Summary:
- 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 Dunkirk. Spider-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.
