Cineworld (LSE: CINE) has more than doubled in value since the start of November. But it fell back Friday, and by midday the share price was down 12%. The downtick is in response to Warner Bros’ decision to make all new releases immediately available to stream in the US.
Odeon owner AMC is in apparently urgent talks over it. But is this another blow to Cineworld’s recovery hopes? And what does 2021 have in store for Cineworld shareholders?
Even after the November recovery, the Cineworld share price is down 70% so far in 2021. The imminent rollout of Covid-19 vaccines has provided hope that people will soon be flocking back to cinemas. But how realistic is that?
I think hopes of a rapid rollout of vaccines are a little optimistic. Yes, it seems we have close to a million doses of the precious stuff already here and headed for our vaccination programme. But it will be a massive undertaking. And the jabs will, of course, be prioritised. It could be quite a few months yet before the UK’s families are all vaccinated and safe enough to head back to the movies.
Cineworld share price bounce
I’m not surprised we’ve seen a bounce, but I expect it to be a short-term one. Markets nearly always react too quickly to news, and it can take some time for the true effect on a share price to work itself out. I reckon the vaccine rebound was overdone, and I expect uncertainty and pressure to keep the Cineworld share price low for well into 2021.
Much of the pressure is financial. Cineworld has survived this long due to a lending deal arranged in November, when the company secured a survival package worth $750m in additional liquidity. It included extra lending, and a waiver of bank covenants until June 2022. It was enough to provide a lifeline, but I can’t help feeling it’s just delaying the inevitable.
I reckon Cineworld’s huge debt made it a risky investment even before the pandemic arrived. In December 2019, net debt stood at $7,680m. And by the halfway stage at 30 June, the figure had reached $8,192m. Around half of that is lease liabilities, but even the other half is still a massive millstone around investors’ necks.
I can understand why it’s the third-most shorted UK stock now. That’s helping keep the Cineworld share price down. And it’s a big vote against the company’s long-term future.
Long-term outlook
I can see Cineworld struggling in 2021. And I will certainly not rule out the possibility of the company needing further funding before things get back to normal. But what is normal these days anyway?
Cinemas have been under pressure from the likes of Netflix and other home streaming services for years. A big screen and fancy sound effects have traditionally had the edge over the humble television. But TVs are getting ever bigger and better, and home cinema sound systems are seriously impressive these days.
Couple that with the eroding of the first-showing protected period for cinemas, and I don’t see a rosy future for the business. Sadly, I can only see the Cineworld share price heading in one direction in 2021. And that is not up.