Issue 31 – Cineplex (CGX)
The Palos Funds sold their last shares of Cineplex (TSX: CGX) yesterday after the company announced very disappointing second quarter earnings. What is more concerning however, is that the legacy business is under significant stress. Cinema advertising and box office revenue growth was lackluster and quite troubling. The majority of CGX revenue growth came from its acquisitions of TriCorp, Saw, and Dandy, which are amusement businesses. We believe these companies to be more capex intensive and more expensive to run as we expect operating expenses, G&A, and rents to rise considerably.