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leaony (< 20)

Why you should invest on IMAX stock NOW

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September 09, 2009 – Comments (2) | RELATED TICKERS: IMAX

The name IMAX stands for (short for Image MAXimum), IMAX is the indisputable leader in large format projection and 3D movie experience around the world, the company, originally from Canada have struggle for years to make profits and interest investors… until now. There are so many reasons why I believe the story will be different now, the industry has changed, IMAX completely modified its business model and digital projection seems to be finally affordable and easy to implement.

Currently the IMAX stock trades at $9,30 and it doesn’t have a P/E ratio yet since last fiscal year ended up with loses (as the previous ones as well).

Why the story is different now… this is the explanation:

IMAX is now commercial

IMAX use to be a great company but focused just on institutional clients, not long ago most of the theaters on the IMAX network were placed on Museums and other institutional sites of general interest, but it was never commercial as it is today. Currently 200 new commercial IMAX theaters are under construction around the world and for the first time in years IMAX will have more commercial theaters than institutional. On 2007 IMAX accounted for 299 theaters and 186 on signed for implementation and construction, in 2008 IMAX theaters accounted for 351 and 213 signed for implementation and construction, This year the company will have more than 400 theaters in operation, out of these more than 400 theaters close that 300 will be commercial against just 120 institutional, no long ago numbers were exactly the opposite where more institutional theaters were in place.  The best part of this is that IMAX is participating now from the box office instead charging clients upfront for the installation of large format screen, sound system and digital projection; this means that in the long run IMAX will start to have a residual steady income from every movie release, something that wasn’t happening before.

IMAX entered the Digital Projection Business

This change is part of the new business model of IMAX, in 2008 IMAX introduced “Digital Projection Systems” that doesn’t required platters (for celluloid IMAX films), just this change along have saved studios hundreds of thousands of dollars, the savings as a result of eliminating film prints are considerable as the typical cost of an IMAX film print ranges from $20.000 per 2D print to $45.000 per 3D print. Remove these cost will significantly increased the profit on an IMAX release for a Studio, which provides more incentive for studios to release their films to IMAX theaters.

Digital projection offers more flexibility; so one movie can be easily replace for another at any given moment. Relatively small hard drives with digital movies replaced the 250-to-500 pounds of celluloid IMAX used before; movies can just now be removed temporarily to project an sport event or concert on the same venue; with film prints the process of set up and remove a movie with this flexibility was just a dream. As part of this game IMAX also developed a new technology in 2002 that allow 35mm live action films to be digitally transformed into IMAX’s large-format at a cost of roughly $1 – $1.5 million per film. This creation has allowed IMAX to retain 10% to 15% from the box office on those films. Imax is also leasing digital projection systems to theaters upgrading to digital, that’s also a new income source for the company.

IMAX in now profitable

Over the past three years IMAX was loosing money every single year, but last August 6th things changed dramatically, IMAX reported net income of $2.6 million, or $0.05 per diluted share for the second quarter ended June 30, 2009, compared to a net loss of $12.2 million, or $0.29 per diluted share for the second quarter of 2008. Total revenues increased 94% to $41.0 million, compared to total revenues of $21.2 million last year. The Company generated operating income of $6.5 million, a turnaround of over $14.0 million compared to an operating loss of $7.7 million in the year-ago period. These numbers clearly speak for themselves, there is no way the company will generate looses from now on, I believe IMAX new game and business model is here to stay, there’s no way this company goes back anymore. If next year… being conservative the company revenue grows by 15% we can expect a P/E Ratio on the range of 15 or 20; that said the stock will be easily priced over $15 but in reality most likely close to $20, that’s twice the price is being trade today of 9,30.  In other words for every dollar invested today in IMAX you will probably make two by the end of 2010.

IMAX partnerships with large movie studios to release new films

IMAX “know how”, film technology including digital cameras, and projection technology has allow them to partner with movie studios and produce great movies that have became incredible successful, these partnerships include studios overseas as well such as the recent agreement with Huayi Brothers Media Group, the largest movie studio in China just few months ago. These agreements will open the door to IMAX of a new business opportunities, IMAX will became an active participant on the movie production itself and will profit for the commercialization of the films. 

The 3D industry has a momentum

We can say Hollywood is 3D ready, big productions houses have decided to go all the way 3D such as DreamWorks, when in 2007 its CEO Jeffrey Katzenberg said that he wanted to do all the films in 3D, and the first of those has been released this year as “Monsters vs. Aliens”. Other studios has been join the trend producing all their movies 3D such as Pixar (UP) or Blue Sky Studios (Ice Age). Not just movie production houses are making great movies for 3D now but also the technology is there, cameras are small enough to film in tight spaces, projectors and screens are affordable and technologically proofed and specially it seems that finally the market is ready for it.

All the analysis of what is happening on this industry makes me think that IMAX will became a big player on the movie entertainment industry, so if you have not considered yet… take a look at the stock go ahead… make a safe investment for 2010.

2 Comments – Post Your Own

#1) On September 09, 2009 at 11:55 PM, ProfyB (79.01) wrote:

I like your analysis of IMAX!  I do have some concerns about the investment though.  The first issue is that one quarter of earnings does not prove a trend.  Even if it did, 2.6 million of earnings for a company with a market cap of 528 million would be a p/e of 50 if you multipled the single quarter of earnings over a full year.  That's a rather high valuation.

 My second concern is that right not IMAX is in negative equity.  While it's possible for a company to recover from this state, debt can be a hinderance to growth regardless of how good the business model is.  Also a large amount of debt will make it hard to obtain credit in case a crisis happens that requires cash.   The interest from their debt took away about two thirds of their operating income.

 That being said, you do mention some very good economics that are in favor of the company and I'm intrigued enough that I'm going to digg deeper (and probably pick up some shares).  It's always more profitable to buy into a company before it's 100% clear that it will take off.

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#2) On September 26, 2009 at 11:48 AM, jwurms (< 20) wrote:

Sony Pictures Releasing to Distribute Michael Jackson's THIS IS IT to Digital IMAX(R)

This will be a huge money maker, and supporting the analyses, that this company is growing and the new digital technology is a money maker. 

 


 

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