On December 15th, Cineplex Inc. (TSX: CGX) was awarded roughly $1.24 billion in damages from Cineworld Group over a botched deal to sell to Cineworld. The Ontario Superior Court said that Cineworld acted in bad faith and breached the terms of the deal, which fell apart during the early months of the pandemic. Cineworld said in a news release that they plan on appealing the decision.
Cineplex’s stock jumped over 20% to C$14.35, into the open but since then has given up roughly half of the gain, ending the week at $13.03.
Cineplex currently has 7 analysts covering the stock with an average 12-month price target of C$17.79, a 38% upside to the current stock price. Out of the 7 analysts, 1 has a strong buy rating, 4 have buy ratings and the last 2 analysts have hold ratings. The street high sits at C$20 from Scotiabank while the lowest comes in at C$13.
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In Canaccord’s note, they raise their 12-month price target to C$19 from C$15 and upgrade Cineplex to a speculative buy rating from hold. They say that the $1.24 billion translates roughly to $19.60 per share, or $13.45 per share on a diluted basis.
They also say that they expect an appeal to be filled by Cineworld. Cineworld has 30 days to appeal the decision, Canaccord expects this process not to be a “multi-year process” as Cineworld can only appeal “specific points of law.”
Canaccord only puts the odds that Cineplex actually gets the $1.24 billion at 25%. They believe that the enforcement of this court ruling might not be the greatest. Pointing to the leverage Cineworld currently holds, with roughly $8.35 billion in net debt, they write “We believe that if Cineworld does not honour the court awarded damages, Cineplex may then have to seek enforcement in the UK courts, which in turn opens up a series of new questions and uncertainties.”
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
