Interactive Investor

ii view: Cineworld shares crash 60%

5th October 2020 11:58

Keith Bowman from interactive investor

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This cinema operator is again closing outlets, sending its share price to a new low.

Temporary suspension of cinema operations in the US and UK

  • Assessing several sources of additional liquidity

Chief executive Mooky Greidinger said:

"This is not a decision we made lightly, and we did everything in our power to support safe and sustainable reopenings in all of our markets - including meeting, and often exceeding, local health and safety guidelines in our theatres and working constructively with regulators and industry bodies to restore public confidence in our industry. 

"We are especially grateful for and proud of the hard work our employees put in to adapt our theatres to the new protocols and cannot underscore enough how difficult this decision was, Cineworld  will continue to monitor the situation closely and will communicate any future plans to resume operations in these markets at the appropriate time, when key markets have more concrete guidance on their reopening status and, in turn, studios are able to bring their pipeline of major releases back to the big screen."

ii round-up:

Cinema operator Cineworld (LSE:CINE) today announced the closure of all its US and UK outlets as from Thursday 8 October, impacting around 45,000 employees.

Despite reopening cinemas as of late June as pandemic restrictions eased, the postponement of film releases into next year by studios such as Disney (NYSE:DIS) has caused it to reassess. 

Cineworld Group shares fell by as much as 60% at the start of UK trading and are currently down 89% year to date. Shares of Hollywood Bowl (LSE:BOWL) and the Gym Group (LSE:GYM) are both down around 55% in 2020. 

Cineworld, which generates most of its sales from the US and UK is closing 536 Regal theatres in the US and its 127 Cineworld and Picturehouse theatres in the UK.

The group, which saw admissions in the six months to the end of June drop by 65% to 47.5 million, continues to assess several sources of additional funds or liquidity. 

Broker Morgan Stanley in a recent research note flagged Cineworld liquidity of $250 million as of the end of August. Monthly cash burn is believed by the broker to be in the region of $50 million to $60 million when operations are suspended. Cineworld is also assessing all liquidity raising options. 

The dividend was previously suspended in order to help conserve cash. Management remains in negotiations with its banks regarding the changing of terms or covenant waivers in relation to lending facilities up to December 2020 and June 2021.

ii view:

Cineworld operates over 770 cinemas across 10 countries. The US generates nearly three-quarters of total group revenues, followed by the UK at almost 15% and other countries, many in Eastern Europe, the balance. All of its outlets closed mid-March under the pandemic with a number such as its 11 outlets in Israel having stayed shut since.

In first-half results to late June, announced on 24 September, the company reported a 67% fall in revenues and its first ever operating loss. That's because it shut outlets for just over two months during the reporting period. 

For investors, closing its cinemas rather than suffering depleted audiences and continued running costs near-term may prove the sensible option. But the focus on the group’s finances and its battle to survive is now intense and will depend very much on how long the pandemic will continue to impact the world, and if a vaccine materialises in coming months. After such a collapse in the share price, Cineworld might tempt bargain hunters, but this remains a highly speculative investment carrying plenty of risk.    

Positives: 

  • Raised $360 million of liquidity in the first-half period
  • A focus on cash preservation & cost reduction

Negatives:

  • Net debt of $8.19 billion as of 30 June 2020
  • Virus cases in the US, its biggest market, are rising

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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