Cineplex Inc (CGX.TO) Intrinsic Value Analysis

Executive Summary

As of May 25, 2025, Cineplex Inc's estimated intrinsic value ranges from $6.75 to $59.80 per share, depending on the valuation methodology applied.

Valuation Method	Fair Value (USD)	Implied Upside/Downside
Discounted Cash Flow (10Y)	$19.84	+83.3%
Discounted Cash Flow (5Y)	$6.75	-37.7%
Earnings Power Value	$59.80	+452.7%

Is Cineplex Inc (CGX.TO) undervalued or overvalued?

With the current market price at $10.82, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Cineplex Inc's intrinsic value, including:

1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
2. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component	Low	High
Long-term bond rate	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	0.33	0.67
Cost of equity	5.3%	8.7%
Cost of debt	5.7%	20.2%
Tax rate	10.0%	16.1%
Debt/Equity ratio	2.67	2.67
After-tax WACC	5.2%	14.7%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

• Forecast Period: 5-year DCF and 10-year DCF
• Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
• Discount Rate: 9.9% (range: 0.0% - 9.3%)

Key Projections:

• Revenue growth from $1,330 (FY12-2024) to $2,589 (FY12-2034)
• Net profit margin expansion from -8% to -1%
• Capital expenditures maintained at approximately 8% of revenue

DCF Model	Fair Value	Enterprise Value	% from Terminal Value
5-Year Growth	$7	$2,225M	79.6%
10-Year Growth	$20	$3,055M	63.9%
5-Year EBITDA	$(1,234)	$1,483M	69.4%
10-Year EBITDA	$5	$2,136M	48.4%

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component	Value
Normalized Earnings	$427M
Discount Rate (WACC)	14.7% - 5.2%
Enterprise Value	$2,908M - $8,273M
Net Debt	$1,797M
Equity Value	$1,110M - $6,476M
Outstanding Shares	63M
Fair Value	$18 - $102
Selected Fair Value	$59.80

Key Financial Metrics

Metric	Value
Market Capitalization	$686M
Enterprise Value	$2483M
Trailing P/E	0.00
Forward P/E	0.00
Trailing EV/EBITDA	5.40
Current Dividend Yield	0.00%
Dividend Growth Rate (5Y)	-100.00%
Debt-to-Equity Ratio	2.67

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method	Weight	Weighted Value
Discounted Cash Flow (10Y)	46%	$5.95
Discounted Cash Flow (5Y)	38%	$1.69
Earnings Power Value	15%	$5.98
Weighted Average	100%	$20.95

Investment Conclusion

Based on our comprehensive valuation analysis, Cineplex Inc's weighted average intrinsic value is $20.95, which is approximately 93.6% above the current market price of $10.82.

Key investment considerations:

• Strong projected earnings growth (-8% to -1% margin)
• Consistent cash flow generation

Given these factors, we believe Cineplex Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.