Kinepolis — On the move

Research: Consumer

Kinepolis — On the move

Kinepolis is ‘ready to tango’, according to management, after impressive FY23 results defied last year’s Hollywood strikes (H2 adjusted EBITDA up 26% despite 2% fewer visitors in Q4). Its confidence is compounded by an improving film slate on the strikes’ resolution (eg blockbuster Dune: Part Two postponed from 2023) as well as clear post-pandemic expansion opportunities, heightened by the impact of the strikes and enabled by the company’s strong finances. However, premiumisation remains at the fore (eg 5.5% higher FY23 in-theatre sales per visitor, currency adjusted) with FY24 set to benefit from dining (a potentially transformative new offering), initial 270-degree ScreenX installations, further premium seating and recent IMAX openings. Consensus FY24 EBITDA forecasts of €198m give an EV/EBITDA of c 9.2x.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Kinepolis hero

Consumer

Kinepolis

On the move

Travel and leisure

QuickView

25 March 2024

Price

€43

Market cap

€1,178m

Share price graph

Share details

Code

KIN

Listing

Euronext Brussels

Shares in issue

27.4m

Business description

Kinepolis is a premium cinema operator with 63 sites in Europe (mainly in Belgium, the Netherlands, France and Spain) and 46 sites in North America, including Landmark, Canada’s second-largest chain. It is also active in screen advertising, film distribution and property management.

Bull

Proven successful, straightforward model: broadening of offering and expansion.

Increasingly attractive film slate owing to a strike-driven backlog of prime releases, complemented by popular innovative programming.

Strong finances for growth on advantageous terms after the pandemic and strikes.

Bear

Reliance on film slate managed through distributor relationships and provision of alternative content.

Other media channels (eg streaming) mitigated by offer of better customer experience than at home.

Subdued consumer spending.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Kinepolis is ‘ready to tango’, according to management, after impressive FY23 results defied last year’s Hollywood strikes (H2 adjusted EBITDA up 26% despite 2% fewer visitors in Q4). Its confidence is compounded by an improving film slate on the strikes’ resolution (eg blockbuster Dune: Part Two postponed from 2023) as well as clear post-pandemic expansion opportunities, heightened by the impact of the strikes and enabled by the company’s strong finances. However, premiumisation remains at the fore (eg 5.5% higher FY23 in-theatre sales per visitor, currency adjusted) with FY24 set to benefit from dining (a potentially transformative new offering), initial 270-degree ScreenX installations, further premium seating and recent IMAX openings. Consensus FY24 EBITDA forecasts of €198m give an EV/EBITDA of c 9.2x.

H223: A tale of two quarters

While the success of Barbie and Oppenheimer, topping a recovery in Hollywood film offering, made Q3 a hard act to follow (attendance up 42%), year-on-year visitor numbers fell by 2% in Q4, with October reportedly ‘empty’, largely reflecting the extended strikes by the Writers Guild of America and the Screen Actors Guild, which had halted the production, release and promotion of certain films. However, taken in the round and mindful of the innate volatility of quarterly cinematic reporting, it is testimony to the resilience of Kinepolis that H2 adjusted EBITDA rose by over a quarter year-on-year with higher revenue per visitor, driven by a strategic focus on premium products and experiences. Moreover, the Q4 hiatus, with encouragingly maintained investment, did not prevent a continued reduction in net financial debt to €378m, down 11% on FY22, and 2.5x pre-IFRS 16 EBITDA.

Home is not where the heart is

The scope for premiumisation and profit boost, given operating leverage, is highlighted by management’s belief in a feasible doubling of revenue per visitor over the next few years. With optimising in-person experience key to attendance, the provision of premium products is increasingly being rewarded in terms of rising customer satisfaction and pickup, thereby denying perceived price fatigue and arguably endorsing the reasonableness of current average c €15 spend for a few hours of entertainment. Management believes the launch of dining (details to be released soon) could ‘move the needle’.

Valuation: Fair

Amid industry uncertainty about the pace of recovery from the impact of the strikes, Kinepolis FY24e EV/EBITDA of 9x is similar to that of peers Everyman and AMC.

Consensus estimates

Year
end

Revenue
(€m)

EBITDA*
(€m)

Net result*
(€)

EPS*
(€)

DPS
(€)

EV/EBITDA* (x)

12/22

499.9

151.0

28.6

1.02

0.26

13.1

12/23

605.5

185.9

56.3

2.08

0.55

10.3

12/24e

640.0

198.0

69.8

2.53

0.71

9.2

12/25e

695.0

222.0

88.0

3.21

1.00

7.8

Source: Kinepolis. Note: *Excluding exceptionals.

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

Exclusion of liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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