The Cineworld Group (LSE: CINE) share price rose when markets opened today, after the cinemas chain said that admissions rose by 75% to 95.3m in 2021. Sales for the year increased by 112% to $1,805m and Cineworld generated an underlying profit before certain costs of $54m.
It’s a far cry from the FTSE 250 company’s last normal year in 2019, when Cineworld welcomed 275m people to its movie theatres. But today’s numbers do seem to confirm my hopes that the cinema business can return to normal after the pandemic. In this piece I’ll look at some of the key numbers from today’s results and explain what I’d do now with Cineworld shares.
Has CINE passed my tests?
On Monday, I laid out three things I hoped to see in Cineworld’s results that would justify share price gains. Has the company delivered? I think it’s a mixed picture.
Are cinemas back to normal? Possibly not. After a strong final quarter last year, management said that January and February were affected by Omicron and a “lack of major movie releases”. Stronger trading is expected from March onwards.
However, the group’s 2021 revenue and underlying earnings did match analysts’ estimates. This gives me hope that management is making accurate forecasts and may be able to deliver on guidance for this year.
$1bn legal bill: There’s no update on a recent Canadian court ruling that could see Cineworld forced to pay $1bn in damages to rival Cineplex. Cineworld “strongly disagrees with this judgement and has appealed the decision”.
However, it has warned today that as things stand, it would not be able to pay the damages. That’s a serious red flag for me.
Debt mountain: I’d hoped that its borrowings would be unchanged from the half-year results, but they’ve continued to rise. Today’s results show a total net debt of $8.9bn, up from $8.4bn at the end of June.
Most of the extra borrowing seems to relate to one-off costs that shouldn’t repeat. So perhaps that’s hopeful. But management comments suggest that the group could still face problems repaying its loans on schedule.
Cineworld share price: what next?
Cineworld boss Mooky Greidinger is a real cinema enthusiast. The Greidinger family are also controlling shareholders of Global City Holdings, which owns 20% of the firm.
I think Mr Greidinger is well motivated to return Cineworld to health. But it looks like a tough challenge to me.
The company’s base case forecast for this year is that admissions will rise to 85% of 2019 levels in the US, and to 90% in the UK. If this happens, Mr Greidinger believes that Cineworld should just be able make it through the year without breaching any of its borrowing limits.
However, he’s warned that any setbacks could see Cineworld face problems repaying its debts on schedule. If the company is forced to raise funds by selling new shares, shareholders could face significant dilution.
There’s also the risk that Cineworld may have to pay that $1bn in damages to Cineplex. If that happens, I think the group might go into administration.
If everything goes to plan, I think Cineworld’s share price could soar over the next couple of years. Personally, I think this is unlikely. I expect Cineworld shares to continue performing poorly until the group’s financial situation improves. I won’t be buying the shares just yet.
