Q: Happy New Year! Looking for some direction on Cineplex. I've held about 2000 shares since 2009 with an average cost of $23.00. I missed selling it off when the pandemic hit and am wondering if I should continue holding out hope it might come back to levels close to $20.00, or should I cut my losses? I don't have any gains to be offset by taking a loss right now. I am planning to retire within the next two years. Thank-you.
5i Research Answer:
CGX is a mature business that is facing a secular headwind due to the dominance of streaming platforms like NFLX and DIS. CGX’s revenue and earnings in the last twelve months have still not surpassed the FY2019 levels yet. CGX also has a very high debt level; the company has a net debt/EBITDA of 7.4x. The business could see a hiccup here and there over the next few years, which provides decent short-term gains. However, given the high debt level and secular decline of the business model, we don’t feel that CGX is a good long-term holding. We think taxes should be a secondary consideration, what matters over time is the total returns. In addition, the capital loss can also be carried forward for future use.