Kinepolis: Finally time to shine

Movie theaters have had a tough time. With studios shifting focus to producing quality movies again. It is time for a comeback!

Since covid, ìnvestors have been talking about a recovery in the movie theater business. So far this has not really materialised. I was never much of a believer. This has changed recently.

The reason the recovery has taken a lot longer is due to several factors. The most important one was the boom in streaming leading to fewer movies being made for the movie theater. People have choices and only go to movies they want to see. I found myself wanting to go to the movies but with nothing interesting playing.

The movie industry made a U-turn after realising that moving content directly to streaming is not helping them that much and leads to missing significant revenues.

Switching back took time, which was prolonged due to the strikes in Hollywood.

With the strikes behind us and producers clearly seeing the value of the movie theaters in promoting their work and increasing the long-term value of the product for streaming services as well.

Now it seems it finally is time for a real recovery.

A low-risk way to play this theme is through Kinepolis.

Kinepolis is listed on the Belgian stock exchange and has operations in Europe, Canada and the US with the majority of its earnings coming from Europe. It has a dominant position in Belgium and managed the downturn relatively well.

Line up

After a lot of poor movie years I think the line up for the rest of 2025 and 2026 look quite good.

H2 2024 was quite good as well after a very poor H1 2024. I think the market is thinking that Kinepolis will not be able to beat that result. Given the line up and the fact that US Box office 2025 is on a percentage basis 3.4% ahead of 2024 while the best months of the year are still to come make me positive.

Given the effect of inflation I think it is only a matter of time before results will be significantly ahead of 2019. This means that the “record” H2 2024 was actually not that special and not a record which will last a long time.

Given the normalisation of movie production, a good line-up will become normal again in my view. This is great news for operators of movie theaters.

Income statement

Looking at H1 2025 we see a good improvement vs the poor H1 2024 result. This was all due to a good Q2 given that Q1 of 2025 was terrible. Looking at the previous picture with a longer timeline, you can see that the H1 2025 result was not that great. H1 2023 for example had an EBITDA of €82M. H1 2019 was €70M.

Balance sheet

Investing in new cinemas has not been popular since 2020. Kinepolis has used it’s cash flow to pay down debt. This has not helped the company’s results to improve materially, given the low interest rates. 2.14 times leverage is not that much for a business with significant real estate ownership. Room for Kinepolis to increase leverage again in the future.

Now Kinepolis is in a position to play offence again. This was also mentioned by management. They stated they signed multiple non disclosure agreements. This means growth through investment is likely in the near future.

Hidden real estate play?

Kinepolis owns most of its theaters except for Canada were it only uses leases. Real estate ownership is an advantage in the long term given that it eliminates potential rent increases. In addition the significant real estate ownership leads to an overstatement of depreciation and thus hidden profitability.

Depreciation is significantly higher than capex. With capex being €42M in 2024 while depreciation was €82M. H1 capex was with €17.9M in line with the €17.6M of H1 2024.

Adding €40M to the net income of €55M leads to a operating profit of €95M. Leading to a PE of ~10.

This is without beneficial effects of working capital.

Cash flow: The good thing about the movie theater business

One of the great things of the movie theater business is that you get paid well in advance of when you have to pay your suppliers. Customers pay directly or even in advance when they are a member. Movie producers are after they send an invoice.

This leads to a negative working capital cycle. Inventory is €8M, net receivables is €35M, while payables is €79M. A negative working capital cycle is especially interesting for growing companies since this means the float grows as well.

Conclusion

Movie theaters have been hit hard by COVID-19 and have seen a slow recovery due to a lack of good movies. With strikes out of the way and film producing getting more priority over series the lack of quality movies troubles could be a thing of the past. Trading below 10 times earnings adjusted for excessive depreciation Kinepolis is fairly cheap. In 2026 and beyond, earnings are likely to inflex higher due to a combination of internal and external growth. This scenario is not priced in by the market expects no recovery A negative working capital position will enhance returns for shareholders, and real estate ownership with limited debt means the risks are manageable. Overall I think the potential reward outweigh the risk in the case of Kinepolis.

Disclaimer: These are my ideas and not personal investment advice. I might own shares discussed and can sell those shares at all times. I don’t know your financial situation. Do your due diligence and do not blindly follow an article on the internet.