Invest-ability daily 27/09/21: Movie Magic?

Bond is back, but Cineworld’s shares are still too much of a cliffhanger

Photo by Maxim Tolchinskiy on Unsplash

If you hadn’t already noticed from the inclusion of Quality Tunes in our daily emails, I am a big music lover. I am also rather keen on films, and dread to think how much I have spent on those two hobbies over the years in the form of gigs, records, CDs, DVDs, downloads, streaming subscriptions and, of course, trips to the cinema. One major beneficiary of my media mania has been Cineworld, whose shares are topping the FTSE 350 table today on news of the release date for the new Bond movie, No Time to Die. It’s been reported that advanced ticket sales for the 18-month delayed movie are “by far and away the highest interest [in tickets] seen since pre-pandemic levels”.

I’m not one of those rushing back to the flicks, though, and especially not for Bond – I am sure the latest outing will be as predictably nonsensical as most of them. But I doubt I will be returning to the cinema aisles any time soon even for something as good as Jojo Rabbit, the brilliant Taika Waititi film that was the last thing I watched in January 2020. The relative cost of visiting the movies versus sitting at home to watch Netflix on increasingly large and high-quality TVs means the cinema must be an ‘experience’ – a big screen with Dolby just isn’t enough anymore. Nor is the damp squib that is 3D – which Cineworld bet big on – or the expensive food offering or sofas of Everyman, especially as by Wednesday my own new sofa will finally have arrived.

Quite frankly I’m somewhat surprised Cineworld still exists as a listed business at all. When I first wrote about it in 2011, it was a small UK-focused cinema chain offering decent value for money to cinemagoers. By the time the pandemic struck it was a lumbering international business with staggering borrowings after a shopping spree that saw it purchase the US’s biggest cinema chain, Regal, for $3.6bn in 2018. When the doors closed 18 months ago, there was literally no money coming in to pay the creditors.

Yet miraculously it has hung on, although a quick look at SharePad data shows a business that is still very far from being a picture of good financial health – it lost $3bn last year, more than $500m in the first six months of this year, while its last reported net debt stood at an eye watering $8.3bn. The pandemic also revealed cinema operators’ biggest weakness – in a world where content is king, they are ultimately middlemen at the mercy of the producers, which have delayed and delayed releases or diverted them straight to their own streaming platforms even when cinemas could reopen. Disney, in particular, has been particularly aggressive in its shift to streaming, a real worry for cinema operators given the earlier box office success of its Marvel and Star Wars franchises.

Should we avoid another lockdown later this year – which is by no means a given – Cineworld could continue its slow recovery; for many the reopening of cinemas is the post-lockdown treat they’ve been longing for, which means the shift to streaming may not be not as pronounced as many had predicted. Cineworld has also settled a long running dispute with the former shareholders of Regal, and is mulling a US listing of the chain which could help it raise some much-needed capital. But overall, it looks like a tortuous path back to the financial health it once enjoyed, and in an entertainment world much changed by the pandemic the challenges are greater than ever. This is still too much of a cliff hanger for me to consider adding the shares to my portfolio.

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