cineworld

In 2017 Cineworld made the bold decision to enter the US cinema market by way of a $3.6 billion acquisition of Regal Cinema Group that created the world’s second largest cinema chain by number of screens.

Cineworld now operates 786 sites and 9,494 screens across 10 countries that, in addition to the core markets of the UK & US, include a number of eastern European countries and Israel.

The acquisition was made by way of a reverse takeover that was funded by debt and a £1.7 billion rights issue significantly altering the group’s financial situation.

Now highly leveraged, the group has suffered from a lack of major film releases of late and the market has punished Cineworld for a decline in sales during H1 2019 which has seen shares give up nearly a third of their value in 2019.

We however see this blip in sales as transitory with a strong Christmas and 2020 film slate promising to increase attendance numbers in the upcoming period and major releases such as the Lion King, Frozen 2 and the latest Star Wars film falling into H2 2019.

When comparing Cineworld with competitors, it’s largest rival in AMC Theatres – which also owns Odeon – similarly experienced a decline in admission numbers during the period.

Cineworld is now heavily reliant on the US with 75% of revenue being earnt from the United States in the first half of 2019 and a strong attendance through H2 2019 could see the group post record figures on the back of a number of blockbuster releases.

At 221p, Cineworld is trading at 10.1x historical earnings representing good value for a company providing a 5.2% dividend that is covered 1.8x.