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More gloom for Cineworld

Cinema group's shares plummeted after it warned that shareholders would feel the pain of deleveraging
August 17, 2022
  • Demand weaker than expected
  • Analysts dubious the company can raise new funds

Cineworld’s (CINE) shares have fallen by 40 per cent after a trading update said that admission levels have been hit by a lack of big-name releases and shareholders could face a “very significant dilution” of their interests as the cinema business looks to deleverage and restructure its balance sheet.

The group said that admissions had been below forecasted levels “due to a limited film slate that is anticipated to continue until November 2022” and that trading and liquidity would suffer because of this.This year, major releases have included Top Gun: Maverick and the fourth Thor film from Marvel, but figures from IMDBPro put overall gross ticket sales for 2022 and 2021 far below 2019 and earlier, at around £700mn against £1.4bn.

There has been improvement this year, already beating last year's sales total, but Cineworld’s latest annual report forecast that admissions wouldn’t recover to 2019 levels until 2024.

While a deleveraging transaction would negatively impact shareholders as Cineworld attempts to improve its liquidity and balance sheet positions, “the group’s business operations are expected to remain unaffected by these efforts”, it said. This is not the first time the company has warned investors of its perilous state: in March Cineworld said there was "material uncertainty" it would be unable to dig itself out of its hole. 

High debt and an ongoing legal case have left Cineworld in a very difficult position. The company has appealed the C$1.23bn (£790mn) fine handed down by the Ontario Superior Court after it pulled out of a deal to buy Cineplex (CA:CGX), an amount far bigger than Cineworld’s market cap.

Peel Hunt analysts said that it was not clear whether Cineworld would be able to raise fresh debt or issue fresh equity. The broker cut its target price down from 32p to 20p. We, unsurprisingly, reiterate our bearish recommendation on the back of a concerning trading update and a further share price slide. Sell at 12p.