One of the earliest individual stock purchases on my fight towards FIRE was Kinepolis (EBR: KIN). It’s one of many satellites in the core-satellite strategy I have built over the years, and after all the hype AMC received this year, I wrote this post to clarify why I held on to them for so long and will remain to do so.
Synopsis: what is Kinepolis?
The Kinepolis Group was founded in 1997, and since 1998 you can buy the shares of Kinepolis on the Euronext Brussels.
As of 2021, Kinepolis operates 114 cinemas: 10 in the US, 46 in Canada, and 58 in Europe – this amounts to a total of 1,106 screens. Its core businesses include box office movies, cultural events (think theater, art movies, film festivals, etc.), B2B (Kinepolis provides for conferences, premieres, and other corporate events), film distribution, and advertising.
Breaking down their revenue streams gives the following numbers for 2020:
- Box Office or the sale of cinema tickets accounted for 51.8 percent of the turnover of Kinepolis. In 2019, this was still 55
- In-Theatre sales (ITS), aka Snacks and drinks, accounted for 26.1 percent of total sales while it was 28 in 2019.
- The remaining revenue was generated by their activities in:
- Film distribution: Kinepolis Film Distribution (KFD) distributes international and domestic movies in Belgium and Luxembourg (1.2%).
- Screen advertising (BrightFish): BrightFish offers an array of media channels to target cinema visitors (1.8%).
- B2B (event) organization: They organized over 1200 events in Belgium before Corona (12.9%).
- Property management: Thanks to its unique real estate position, the Group owns a significant part of its real estate (53 cinemas, which together generate 59% of the visitors). In the cinemas that Kinepolis owns, more than 90 000 m² are leased to third parties (6.2%).
Right before the pandemic, On 20 February 2020, the cinema chain still had a market value of more than €1.6 billion, corresponding to €62 per share.
At the beginning of the 2020 summer, the cinema chain started receiving visitors in Europe and Canada. Due to capacity constraints and other corona measures, visitor numbers remained well below 2019 levels. By September 2020, Kinepolis saw visitor numbers increase to 60-70 percent of total capacity. A large part of this increase in visitors was due to the blockbuster ‘Tenet’.
Unfortunately, even with harsh restrictions and mouth masks in cinemas, Kinepolis could not avoid the second lockdown of their cinemas in the autumn. On 29 October 2020, Kinepolis’ share price clocked in at €19.20 per share. This was the low point for Kinepolis when it became clear COVID-19 measures would last into 2021.
Delayed salary payment for Kinepolis management
Time to get creative
During this harsh period, the Kinepolis Group itself wasn’t sitting still. While closures and reopenings followed each other in quick succession, the Group launched new concepts such as Kinepolis Home Delivery in Antwerp. Drive-in cinema Kinepolis On Tour throughout Belgium, and Private movie and gaming screenings in the US.
The Kinepolis Rises
For the first months of 2021, KIN was hovering around €35 ($42.5) but steadily recovered since mid-2021 as governments lifted restrictions.
Due to Corona, they adopted new strategies at a rapid pace coming from the employees themselves. One such project that will stay for sure is streaming services to businesses.
From theater room 13 in Kinepolis Antwerp, they streamed presentations and other events. It’s not a temporary solution either. Even in 2021, with the reopening of theaters and live events, they will continue to provide a hybrid model that offers the physical location and stream the event. To make this work, Kinepolis works together with Blue Moon to handle the logistics of this new revenue stream.
The reopening of theaters is going better than expected
While 2021 saw a bad start for Kinepolis with prolonged closures due to the Covid-19 pandemic. Only the Spanish, Luxembourg and American cinemas were open during the first months of 2021, albeit with significant restrictions and a lack of content.
At the end of May and beginning of June, the French, Dutch and Belgian cinemas reopened successively. In mid-July, all Canadian Landmark cinemas were also allowed to reopen.
Thankfully, the relaunch is going very well in all countries. The month of June in the opened cinemas resulted in an average audience level of 50% compared to the same period in 2019, a pre-Covid record year. In July, this rose to an average of 62% of visitors in 2019. Percentages vary per country for several reasons:
- Vaccination coverage
- Covid figures
- Imposed Covid measures
- Public confidence
- Quality of the local film offer.
On top of that, the newly-opened cinemas in Haarlem and Leidschendam (NL), Metz (FR), and SE Edmonton (CA) had a strong start.
The reboot is supported by a richer film offer than 2020, with blockbusters performing well in many countries but not reaching their pre-Covid potential yet.
Movie line-up 2021
Important movies for 2021 are:
- Fast & Furious 9
- Jungle Cruise
- Free Guy
- The Suicide Squad
- The Boss Baby: Family Business
- Shang-Chi and the Legend of the Ten Rings
- No Time to Die
- Hotel Transylvania: Transformania
- The Addams Family 2
- Venom 2
- Ghostbusters: Afterlife
- Top Gun: Maverick
- Spider-Man: No Way Home
Much to look forward to, but I need to address one big elephant: Streaming/VOD.
It’s archnemesis: streaming
During the pandemic, streaming services received a boost thanks to the numerous lockdowns across the globe. In 2020 some film studios even chose to launch their films directly on their streaming platform.
Walt Disney was the first film studio to launch their movie ‘Mulan’ directly on their streaming platform Disney+.
Warner Bros followed a few months later by planning no less than 17 releases via their streaming service HBO Max. Because of these developments, cinemas lose their two-month exclusivity on blockbusters.
Will streaming take over the (cinema) world?
Exclusive streaming seems to remain experimental for now as Warner Bros struck a deal with chains AMC, Cineworld, and Cinemark to give them exclusive 45-day theatrical releases in 2022.
Even Walt Disney Co (DIS.N), who was first with streaming exclusives, has slowed down and said on Friday10 September, it will release “Eternals,” “West Side Story,” and the rest of its 2021 films exclusively in theaters before sending them to streaming.
While a far cry from the more lucrative 90 day-windows, it shows that studios still consider theaters as their primary way to push their movie franchises or start a movie’s life-cycle. They most likely used some movies to attract new customers to their streaming platforms. Not only do cinemas prefer the status quo, but some movie stars and directors prefer the big screen as well.
The big unknown is how much impact the new release schedule will have on the movie industry and how many people will exchange the big silver screen for the smaller home screen.
Or will Kinepolis take over streaming?
Kinepolis isn’t sitting still on this front either. It bought several movies from Netflix to show on their screens. They are ‘Chicago 7’, ‘The midnight sky’ (with George Clooney), and ‘Mank’ (pilot). These movies will first be shown at Kinepolis for three weeks before appearing on Netflix. Other plans are to show Netflix series in theaters.
Movie theater Review: 5/5 – definitely a company to watch
So, what does all of this mean for the stock? Is Kinepolis a buy?
While it has recovered from 2020-lows and is close to its past highs, I believe Kinepolis has significantly more potential than its North-American competitors and will quickly go beyond €60 once the economy opens up completely. Before the pandemic, its worth was almost double that of Cinemark Holdings, INC (CNK) and triple that of AMC and IMAX.
Kinepolis distinguishes itself from its competitors through its real estate business (similar to McDonald’s strategy) regardless of the pandemic. They own a large part of their real estate, and they rent out venues to shops, restaurants, and cafes in their cineplexes. In other words, Kinepolis is not burdened with enormous rents while having little revenue during the pandemic.
A healthy balance sheet
They entered 2021 with 171 million euros in cash on its balance sheet and have taken out an extra loan of 80 million euros so that they were prepared for the worst-case scenario, which didn’t happen. This cash buffer ensures that the Group doesn’t have to worry much.
For the time being, the company does not have to worry about paying off any significant debts. The net financial debt of Kinepolis, excluding lease obligations, amounts to €513 million, and the first major repayment is not scheduled until 2022. This year, the company has to pay off €10 million of its debts.
Considering the company’s financial stability (and prospects), I could see Kinepolis win ground in the US with the other cinema groups struggling financially. For example, it acquired the American Group MJR Digital Cinemas in 2019 and bought Canada’s Landmark Cinemas in 2017.
All-in-all, the company is in good shape despite the pandemic. I would wait to purchase this stock till it is correct a bit and comes back from current highs. I personally plan to jump back in around €45.