UK cinemas were hammered by the pandemic: 2020 admissions were down by 75% and, as of July, seat occupancy was only 57% of pre-Covid levels. You might think this is a risky way to start an article extolling the virtues of Cineworld (LSE: CINE) shares, but bear with me – I think that after a sluggish start, cinemas will see a post-pandemic bounce-back.
Of all the industries shaken by the pandemic, cinemas are showing a particularly slow recovery. London office leases and hospitality were both hit hard by Covid-19 restrictions, but are seeing a resurgence (just see British Land and JD Wetherspoon’s share performance). Cineworld share prices, on the other hand, have still shown little sign of recovery, sitting at 66.20p as I write, down from 181.45p in February 2020.
But I still think the future looks brighter for the cinema chain. Ticket sales are driven by big name releases, and blockbuster showings of the new James Bond and Top Gun: Maverick later in the year may be enough to tempt visitors back to the big screen. Before the pandemic, the industry was also looking healthy: 2018 and 2019 were bumper years, and Cineworld offered investors a healthy dividend yield of 4.8% until the pandemic hit. The end of social distancing and capacity limits and the possible introduction of vaccine passports later in the year may also encourage visitors to return to the pictures in greater numbers.
But Cineworld shares are not without risks, and it looks as though the next few weeks could be particularly choppy. Cineworld is carrying a heavy debt burden, not helped by lease modifications last year, and revenues plunged in the pandemic from £4370m in 2019 to £852m (and a loss of £36m) in 2020. The chain has also been bolstered by government support, and has to now shoulder both the end of furlough and an end to VAT reductions on cinema tickets. Streaming also became more popular over the past 18 months, with giants such as Disney Plus releasing new titles straight to digital download.
Though a UK company with a UK listing, Cineworld also announced in August that it was considering a partial US listing for its subsidiary, Regal, which would allow it to access liquidity: Cineworld shares rallied by 7% as a result of the announcement. Although the CEO denies any link, there is an outside chance that Cineworld could become a ‘meme stock’ like its larger rival AMC. This cinema operator saw share prices soar when investors used social media to encourage others to purchase the stock, damaging institutional investors who had taken a bet against AMC. And with pent-up customer demand and a slew of blockbuster releases this autumn, I suspect that Cineworld shares could also prove to be down but not out…