Cineworld Group (LSE: CINE) shares hit a recent low of 23p approaching the end of October. But, from that point to market close on 20 November, the Cineworld share price doubled. And, in early trading Monday, it spiked up another 25%. Why? Cineworld has just announced progress on the liquidity front.
But let’s first put things into perspective. Despite the gains of recent weeks, the Cineworld share price is still down 75% year-to-date. And that’s still way worse than the FTSE 250, which has now recovered to a mere 10% loss in 2020.
The Cineworld upswing has coincided with Covid-19 vaccine developments. First came the Pfizer vaccine, with an apparent 90% success rate in trials. Moderna results soon followed, showing a success rate of nearly 95%. The University of Oxford vaccine, being developed in partnership with AstraZeneca, is also looking good. A large-scale trial has shown a 70% success rate, rising to 90% after an initial low-dose inoculation. It’s much cheaper and easier to store. So it could reach a lot more people more quickly.
Cineworld share price boost
But, key to Monday’s Cineworld share price jump, the company has revealed new measures to enhance its liquidity. It has secured a new $450m debt facility and will issue equity warrants alongside. It has agreed bank covenant waivers until June 2022, and has extended the maturity of $111m in other debt from December 2020 to May 2024. And it has managed to bring forward an expected tax refund of $200m to early 2021.
That’s lifted the threat of covenant failings by the end of this year. And it should give Cineworld some breathing space to get itself back into a long-term viable position. But all this has really done is delay the consequences of Cineworld’s existing debt and open the door to adding even more. And I twitch when I see Cineworld’s mounting debt pile, which has reached around $8bn and now looks set to rise further.
The fact that the Cineworld share price is still so very low shows that things aren’t as simple as just finding ways to keep the debt collectors from the door for a little longer.
Long-term cinema outlook
There’s also the outlook for the cinema business as a whole. And we’ve have had some news there in recent days too. A new agreement signed by Universal and Cineplex has shortened the theatrical window from three months to as little as 17 days. That follows other deals made between Universal and other cinema chains. It means less exclusivity for cinemas before new movies are released on streaming media and other channels. And I think it’s a trend that can only continue.
Personally, I think Cineworld will survive. I hope it does, as I love going to the movies — though I expect it will be some months yet before the doors open again. And the super-low Cineworld share price does look tempting. But I really have no idea what sort of financial shape Cineworld will be in by the time it gets back to actually making profits. And that’s the dilemma investors are surely faced with right now.