Where next for Cineworld share price after bleak half-year results?

Posted: 29 September 2020 12:09 pm
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Cineworld’s share price has fallen by 80% this year, and things could be set to get worse after large half-year losses

Cineworld, the world’s second largest cinema chain, has seen its share price plummet 80% this year, after being hit hard by the coronavirus pandemic. However, Cineworld’s shares could fall further still, as hefty half-year losses and rising coronavirus cases place yet more strain on the company’s operations.

A difficult year for Cineworld

It goes without saying that 2020 has been a difficult year for most companies around the world, and aside from the aviation industry, it is difficult to think of many that have been as directly impacted by the pandemic as the theatre industry.

With countrywide lockdowns and people all around the world being forced to stay at home, cinema chains have been hit hard by the pandemic. Between March and June, most of Cineworld’s 9,500 theatres were forced to close as the coronavirus spread around the world. It is therefore unsurprising to see a dramatic decline in revenue for Cineworld during the first half of 2020.

The company revealed in mid-September that group revenue fell nearly 70% from $2.1 billion (£1.63 billion) in 2019, to $712.4 million (£610.5 billion) through the first half of this year. The group also registered a pre-tax loss of $1.6 billion (£1.24 billion), compared to a $140 million (£108.6 million) profit in 2019.

Most of the group’s theatres were closed until late July when coronavirus restrictions were lifted in many places around the world, and despite some of their cinemas re-opening, there are still more than 200 of their sites closed around the world.

However, the company’s management has been pleasantly surprised by the sites that have been opened, with many of its screenings selling out recently (albeit at a reduced capacity). The firm’s management believes there are still reasons for them to feel positive, stating there has been a “steady performance of re-opened sites in ROW territories and initial admission build-up in the UK and US driven by the release of Tenet and local movies”.

The recent revival that the group witnessed since reopening was reflected in their share price, which had recovered to nearly £60 at the start of the month, from just over £20 on 17 March.

The risk of new lockdown restrictions

However, the Cineworld’s share price has fallen again this month, trading at £43.80 on 28 September. Coronavirus cases are now rising once again in many of its key markets (UK and US), and the risk of further restrictions is becoming greater for the cinema chain.

The impact of COVID-19 on Cineworld is uncertain. Should stricter social distancing measures begin to be reimposed in the UK and US, this may force the company to enact cinema closures and delayed movie releases, as well as potential redundancies.

The company has already made use of government support schemes, suspended dividend payments, and raised $360 million worth of additional liquidity to support its business through this difficult period. But Cineworld’s management admitted that should restrictions be re-imposed; they may have to raise additional capital once again.

What does this mean for Cineworld’s share price in the future?

The performance of Cineworld’s share price in the short-term is uncertain, and incredibly dependent on the course of action that governments around the world take to curb a second wave of coronavirus cases.

It has been shown recently that when cinemas are open, people are still willing to attend them. Therefore, if Cineworld can keep the majority of its sites open for business, there is no reason the company’s share price cannot head on an upward trajectory in the future, as it had the last couple of months.

However, the risks that further social distancing places on the company are immense. The company cannot afford the second-half of the year to follow like the first, without potential job cuts and cinema closures – both of which would heavily impact the company’s share price.

Therefore, as one of the more volatile stocks this year, and with the future uncertainty that coronavirus places on Cineworld’s performance, any investor expecting short-term returns from the company may want to think again.

This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.

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