The FTSE 100 has remained strong and stable in the past couple of months though the performance of its little brother the FTSE 250 has really put it in the shade.
Britain’s second-tier index has climbed almost 10% since the threat of a ‘no deal’ Brexit was removed (at least for the time being) in early October. And it continues to ascend amid expectations of a Conservative win at December 12’s general election, a scenario that would see prime minister Johnson’s withdrawal agreement with the European Union passed in January. A clear Tory lead in the polls has also quelled fears that a left-wing Labour Party will secure power after next month’s ballot.
Too cheap to miss?
Despite the FTSE 250’s surge above 20,800 points — the highest level since July 2018 — there remain plenty of top growth and income shares that are wildly cheap at the current time. One of these shares is Cineworld Group (LSE: CINE), a cinema operator whose forward P/E ratio of 8.8 times sits well inside the accepted bargain watermark of 10 times and below.
The acquisition of US cinema chain owner Regal Entertainment in spring 2018 might have loaded the business with lots of debt, but in my opinion, that rock-bottom rating reflects the increased pressure on Cineworld’s balance sheet and the massive cost to service this debt. Net debt stood above $7bn as of June.
It’s worth mentioning, too, that some slightly-disappointing ticket sales have also suppressed investor interest of late. In the first half of 2019 admissions were down 14% from the same period last year, at 136m. But this was owing to a stronger film slate in the corresponding 2018 period when Cineworld could rely on blockbuster titles like Avengers: Infinity War and Black Panther from Marvel Studios to pull in the punters.
The bigger picture
The cinema operator isn’t immune to profits lumpiness thanks to the impact of Hollywood’s release schedules. But what’s clear is that the broader trading environment remains exceptionally favourable for Cineworld, the world’s second-biggest chain following the takeover of Regal.
Disregard any fears you may have about the impact of streaming on its customer base: a trip to the cinema remains one of life’s unshakable treats. In fact, our love of watching movies on the big screen continues to go from strength to strength. Latest data showed Frozen 2 secured $350m in global takings in its opening weekend, setting a new record for any animated showing. And Joker this month became the first R-rated film to set box office receipts above the $1bn marker.
Lots to celebrate
No wonder, then, that City analysts are expecting earnings at the FTSE 250 firm to keep rising year-on-year for the foreseeable future. A 9% bottom-line rise is predicted for 2019 and an extra 7% advance forecast for the upcoming year.
One final word on Cineworld’s debt pile. There’s no doubting that it’s huge, but I’m encouraged by the company’s debt reduction plan, efforts which continue to run ahead of schedule. It’s also worth noting that this isn’t expected to curtail hopes of big dividend growth over the next couple of years, resulting in monster yields of 6.5% and 7% for 2019 and 2020 respectively.
I bought shares in Cineworld on the back of its brilliant dividend yields, and at current prices I’m tempted to buy some more.