Cineworld Group PLC (CINE) – Published 07/01/19

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Company Overview:

Cineworld (CINE) is a global cinema group, running multiplex sites throughout the UK, US, Israel and both Eastern and Central Europe. Cineworld operates under a number of brands, such as Cinema City, Planet, and Cineworld Cinemas.

Acquisition Of Regal Entertainment

In 2017, Cineworld acquired its US equivalent, the Regal Entertainment Group, at a cost of $5.8bn. This strategic acquisition was aimed at heading off competition from the Chinese Dalian Wanda group. The Chinese chain is the largest cinema business in the world, and owns the AMC Theatres Group which operates Odeon cinemas, and others, in the UK.

Cineworld’s strategic plans also include further investment in refurbishing its estate, and rolling out high tech ScreenX, 4DX and IMAX facilities. ScreenX gives a 270 degree panoramic view of a film, so is in line with the trend for immersive entertainment experiences.

Revenue And Profits Up

Cineworld used $4.1bn of borrowings and a $2.3bn rights issue to fund the acquisition, and the company’s increased debt levels caused some analysts to downgrade the stock.

However, in the year ending December 2017, Cineworld grew revenues from £797.80m to £890.70m. Operating profit rose from £112.8m to £128.2m. Post-tax profits rose from £82m to £100.6m. The dividend per share rose from 19p to 21.4p, giving a yield of 3.57%. Dividend cover has been declining though, from 1.62 in 2016 to 0.77 in 2017.

August 18 Interims Also Show Rising Revenue

Cineworld’s most recent results were its 2018 interims, published in August 2018, and covering the six months to June 2018. The interim revenues for the six months include revenues from the Regal business, from 1st January 2018. Revenue in the period was $2,456m which was an increase of 10.8%. Earnings (EBITDA) saw an increase of 14%, with margin rising from 0.7% to 22.5%.

The US provided the best performance, with takings at the box office up 14.3%. The company admitted that the UK, Eastern Europe and Ireland had had a challenging first half, but provided solid results.

Film Release Dates Are Key

The Telegraph reported Cineworld’s CEO, Mooky Greidinger, as saying that Pixar decided not to open Incredibles 2 during the World Cup. That meant a delay before Cineworld could put the movie into their cinemas. When it did get released, it took £9.5m in its first weekend. But this came too late for Cineworld’s interims, which covered the six months to June 2018.

Cineworld stands to benefit massively in the next year, from the army of blockbusters heading its way. There are fresh instalments of some of the biggest movie franchises, including StarWars, Spider Man, Toy Story, Lego, Frozen, Dumbo, the Avengers and the Lion King. Every one of these is forecast to generate worldwide ticket revenue north of $1bn, or £800m.

The dividend payout will be maintained, and the CEO reports that the business is focusing on generating cash to reduce its debt burden. The business is expecting synergies of $100m from the acquisition, to be harvested in 2019.

The interim earnings per share (EPS) for the six months were 11.1, compared to 8.2 in the same period last year.

November 2018 Trading Update

This update covers the period from January 2018 to 11 November 2018, and shows revenue growth of 11.6%, largely driven by the US business. The group expects to fulfil its performance expectations this year.

Summary

Cineworld is intent on getting maximum value out of its Regal acquisition, and the set of hot blockbuster titles outlined above should help it reduce its debt position substantially in the next year. Meanwhile, the investment in upgraded cinema facilities should also boost revenue. In good times or bad, people will continue to want entertainment, so with a current P/E of 12.6, the FTSE 250 chain should more than earn its place in a portfolio.