Back in mid-August, I offered three reasons why the Cineworld share price could rally in September. Since then, the value of the battered cinema operator has climbed almost 30%, including a 12% rise today. I think there could be more to come.
The Bond effect
While the recovery in the Cineworld share price can probably be attributed to a number of factors, the forthcoming release of No Time to Die is surely the main cause. Having been delayed multiple times by ‘you-know-what’, the 25th James Bond movie will hit the silver screen this Thursday. Understandably, management’s banking on its release being a catalyst for a revival in Cineworld’s fortunes.
Despite some anxious pre-release chatter, I can’t see the film not being a success. This should be great news for CINE and, you’d suspect, its owners. Goodness knows they’ve suffered over the last couple of years! Despite its recent rally, the Cineworld share price is still 70% below where it stood in 2016.
Other reasons to be bullish
In a recent article by The Times, CEO Mooky Greidinger declared that “cinemas aren’t going anywhere” and that going to the movies was “still the most affordable form of entertainment today.” He then went on to highlight the social aspect of going to the cinema with friends.
Naturally, you wouldn’t expect the leader of a major cinema chain to say anything different. Even so, nothing here sounds controversial. Moreover, the slate of film releases looks in far better health. Top Gun 2, Dune and Matrix 4 are all on the horizon. Colder weather should also begin pushing more people towards its sites.
On the other hand…
But let’s be honest. Even if all of the above come to fruition, I think it’s fair to say Covid-19 has succeeded in changing the movie business forever.
The permanent shortening of the ‘cinematic window’, for example, would surely be bad news for CINE. Even if movies continue to be released on the big screen first, the precedent set during the multiple lockdowns has only served to adjust consumer expectations. It’s another reminder that all business is based on the removal of friction.
Levels of executive pay is another thorny issue. While I expect those in charge to be suitably rewarded for steering a company through tough times, the bonus scheme announced in January left a nasty taste. Based on this, Greideinger takes home £33m if the share price hits 190p in three years. That doesn’t sit well with me given how staff were treated in 2020.
That also looks like a tough target given the shedload of debt the FTSE 250 stock carries. For its part, CINE believes it can successfully address this burden in time. Whether this involves a mooted US listing or not, that’s a big weight to be carrying around in a very uncertain world.
Cineworld share price: 100p-bound?
Assuming we don’t see a resurgence of Covid-19, I think there’s a good chance (but no guarantee) the Cineworld share price could breach 100p soon. This would give new holders a gain of around 25% from here.
Even so, I’m still convinced CINE stock just isn’t for me. There are simply too many question marks surrounding its long-term future to make me think it will hit that three-year target without a big (Bond-esque) struggle against an unpredictable Mr Market.
