Cineworld shares plunged again last week! Is it time to invest?

Cineworld’s share price has slumped again as uncertainty over its survival mounts.

Last week, shares of Cineworld closed at a record low 1.92p on Thursday. Some dip buyers then emerged and the hobby stock closed the week at 2.3 pence per share.

Will Cineworld’s share price eventually fall to zero? Or could it soar from its recent lows?

Warning Blow

First, a recap. Cineworld took a dive on Aug. 17 after announcing it was considering moves to boost cash and potentially restructure its balance sheet.

He noted, however, that such moves would likely lead to a “very significant dilution” of the interests of existing shareholders.

Cineworld said it was taking action as recent admission levels were below expectations. As the film industry’s gradual recovery has continued, the company said disappointing trade of recent times was due to a “limited film slate”.

Additionally, Cineworld said the low slate of movies is also expected to last through November.

Bankruptcy coming?

Cineworld shares fell again two days later following reports that it was considering bankruptcy proceedings. According to the Wall Street Journal, the chain was considering a Chapter 11 filing in the US and liquidation in the UK.

Cineworld confirmed that it was considering Chapter 11 along with “associated ancillary proceedings in other jurisdictions” shortly thereafter on August 22.

horror show

Hargreaves Lansdown analysts described the events at Cineworld as a “horror story”.

According to analyst Susannah Streeter, the Chapter 11 filing is unlikely to be the company’s “final chapter.” But she adds that “even as a revamped entity, Cineworld will face a difficult challenge as ticket sales are unlikely to fully recover from the heady days of the past.”

Cineworld’s market capitalization now stands at just under £32m. This is a far cry from the four and a half billion pounds that the company was worth before the Covid-19 epidemic.

What next for Cineworld?

A trip to the cinema retains a special and unique experience for the viewer. This has been the case for more than a century despite the emergence of competitors such as television and the internet. In fact, the global box office was perched at record highs just before the pandemic.

But the threat posed by streaming services like Netflix
and that of Amazon
Prime platform is severe and growing. The danger is particularly acute given the disruption to the studio release model that means people don’t have to travel to their local movie house to see the latest film.

A not so special experience

In this post-pandemic era, it takes more to get people off the couch.

Everyman Media Group, for example – which is also listed on the London Stock Exchange – screens mainstream, independent and classic films. It also broadcasts special events like concerts and theater productions.

Viewers can also grab a bite to eat or a drink from its on-site restaurant or bar or have something served at their seat.

This gives them an edge over standard channels such as Cineworld. The likes of Everyman still have a role to play in the age of streaming by providing a deeper visitor experience.

Crushing debt

Cineworld may then have to tear up its rulebook to thrive in a changing industry. But his exorbitant debts give him little or no leeway to undergo wholesale changes, even if he wants to.

By the end of 2021, Cineworld had accumulated $4.8 billion in net debt. This figure has increased significantly from just £278.3m four years earlier and largely reflects the acquisition of US chain Regal Entertainment for $3.6bn in 2017.

Last week’s update shows that Cineworld continues to walk a tightrope. The costs of its global expansion program came back to haunt it after the mass closure of its cinemas in 2020.

It’s also important to remember that Cineworld was ordered to pay C$1.23 billion in damages to Canada’s Cineplex after it backed down from a takeover attempt two years ago. The company is currently appealing this amount.

I used to own shares of Cineworld, but sold them at the height of the pandemic in 2020. I bailed out shortly after the company warned of its ability to continue operations.

Just like I did two years ago, I think there’s a good chance Cineworld shares will go all the way to 0p. So I think that’s a part of the UK that’s best avoided.

About Valerie Wilson

Check Also

Verastem: Private Placement – Form 8-K