The Cineworld (LSE: CINE) share price has had a roller coaster year so far. At one point in 2021, it was above 120p. That’s a far cry from what the shares are trading at now. The stock is hovering around the 63p mark.
So with all this volatility, is now a buying opportunity for me? Well, I’m not going to dip my toe in the water just yet. In fact, as a long-term investor, I’ve been bearish on the stock and continue to be.
The numbers
Last week the cinema operator release its interim results. I’m not surprised that Cineworld’s half-year numbers weren’t great. Let’s not forget that during most of the period, its cinemas were closed due to Covid-19 restrictions. Revenue fell by 58.9% to $292.8m and profits were dismal as well.
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It incurred an operating loss of $208.9m. But at least this was much smaller than last year’s loss of $1.3bn. The company put this down to reduced asset impairment reversals from lease modifications.
Cineworld’s leverage has soared during the pandemic. As of the end of June, net debt stood at a staggering $8.4bn. My concern is that the company is starting to recover from the coronavirus crisis but it has the additional challenge of managing its debt burden. I reckon this could weigh heavily on the Cineworld share price.
Surprising news
But there was another statement in the half-year results that caught me by surprise.
In 2018, Cineworld acquired US cinema group, Regal Entertainment. It gave the UK company access to the North American market. And it now generates a large portion of its revenue and profits from the US.
But the UK firm is now considering the “listing of Cineworld or a partial listing of Regal in the US”. It said in its interim statement that the US equity markets are the largest and most liquid and so it wants a piece of the action.
To me, it suggests that it needs more capital as conditions are still challenging. It has also seen what its competitor AMC has done and is following suit. But it’s worth noting that its rival has become a meme stock. Does Cineworld want the same?
As I said, I didn’t expect this, but it makes sense to me to try elsewhere for capital. Nothing is set in stone yet. And there’s no guarantee that it will be able to raise finance via a US stock market. But I guess in the interest of shareholders it has to try. After all, it has exhausted most avenues of accessing liquidity in the UK.
Not all bad
Things are improving. Trading conditions are not as grim as last year. Most of its cinema estate has reopened and the majority of capacity restrictions have been lifted in the US and UK since July. It also has a strong film line-up for the fourth quarter, which should encourage people to watch movies on the big screen.
A buying opportunity?
While the Cineworld share price has been volatile, I still have the stock on my watch list. I’m concerned over the ballooning debt pile. And it clearly wants access to more money with another listing. So I’m not buying just yet.
