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Title : National Bank lowers revenue growth expectations for Cineplex, cuts price target
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National Bank lowers revenue growth expectations for Cineplex, cuts price target

Even the recent release of Star Wars: The Last Jedi couldn't keep Cineplex Inc. shares from tumbling nearly four per cent Monday after an analyst forecasted a rocky 2018 for the company.

The fall came after the National Bank of Canada cut its price target for the entertainment company's shares as the bank lowered expectations for box office revenues and concession sales on Monday.

National Bank of Canada analyst Adam Shine dropped his price target by $2.50 to $38, but maintained a "sector perform" rating on the stock. He cut his forecast for growth in box office revenue to three per cent at most compared with earlier expectations for at least nine per cent.

Shares slip

Cineplex shares dropped 3.93 per cent or $1.33 to $32.50 on the Toronto Stock Exchange Monday.

Shine linked the updated forecast with the theatre chain continuing to install recliner seats, which leaves some screens out of commission, and suffering an underperformance in the fourth quarter, which included the Dec. 15 release of the latest Star Wars film that the bank said, "just didn't deliver the upside strength."

Shine said the bank looked at data provided by the Motion Theatre Association of Canada to find the performance of Star Wars: The Last Jedi was "considerably lower" in the final two weeks of 2017 when compared with the end of 2015 when Star Wars: The Force Awakens was released.

"While expectations were always for something slightly lower, the gap was much wider than expected," Shine said in an email to the Canadian Press. "We think the critics were overly-generous with their reviews of Star Wars: The Last Jedi."

Cineplex had hoped tacking on a $1 fee for assigned seating at some regular screenings of the Disney-backed film, which has raked in more than US$595 million at the North American box office, would convince audiences to pay more for the chance to avoid vying for coveted seats.

The company had used the surcharge at 20 per cent of its Canadian locations.

A reboot of Jumanji; the third movie in the Pitch Perfect series; and flicks with Oscar buzz, including Molly's Game, Call Me By Your Name and I, Tonya, were also all released in the final stretch of 2017 that triggered the bank's scaled back expectations.

Looking ahead in 2018, the bank said it expected the box office will be "heavily reliant" on the second quarter, when Avengers: Infinity War, Deadpool 2, Solo: A Star Wars Story,  The Incredibles 2 and Jurassic World: Fallen Kingdom are released.

It believes the box office will be "flattish" in the third quarter and "weak" in the fourth quarter as sequels to the X-Men, Wreck-It Ralph, Fantastic Beasts and Transformers series make it to theatres, alongside a live Mulan film.

Premium prices

If Cineplex is looking to deliver any growth, it might have to look to prices, said the bank, which noted premium ticket prices have been "playing a supportive role" in elevating the box office.

"We look for Cineplex to push harder than usual in the area of pricing as it explores more reserved seating (extra $1 for 1-2 middle rows across select screens in certain theatres) and strives to mitigate the effects of rising minimum wages in Ontario through cost cutting and some price hikes," the bank's quarterly preview report said.

Cineplex is expected to report its fourth-quarter results on Feb. 22.

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