In March, the Cineworld (LSE: CINE) recovery appeared well on track. Since October 2020, the Cineworld share price had multiplied a massive eightfold. It had gone from just over 15p to almost 125p in little more than five months.
But Cineworld shares have since lost almost half of that peak valuation again.
I do think it’s easy to lose the bigger picture, and see Cineworld’s woes as being entirely caused by the pandemic. Over the past two years, we’re looking at a 73% loss. And the shares were already on their way down before Covid struck. In fact, they had been declining steadily for almost a year before the 2020 crash.
Cineworld shares support?
But looking more closely at Cineworld in 2021, I can’t help thinking I’m seeing a bit of investor support building up. Though the Cineworld share price has fallen again, it does seem to have steadied close to its early 2021 levels. And at 65p, it’s still a good bit higher than the lockdown low.
Cinema audiences getting back to 50% of pre-crash levels will have lent some support. But first-half results released in August showed the pressure on Cineworld’s bottom line. The company saw revenue of only $293m. That’s down from revenue of $712m in the first half of 2020, a period that itself was hit by closures.
It should be just a short-term drop, mind. And I expect the second half to paint a better picture. But Cineworld’s debt figure does throw any thoughts of revenue improvements into context. At 30 June, net external borrowings (less cash) stood at $4.63bn. That was an increase from $4.55bn at 31 December.
Sufficient liquidity?
Cash burn was going at approximately $45m per month. But the company had $437m cash on the books in June. And it’s since added another $200m loan in July. So, I don’t see any pressing need to panic over liquidity. I reckon Cineworld almost certainly has enough to keep it going until it reaches profits and positive cash flow again.
Once we pass those milestones, I can see Cineworld shares getting a boost and taking off. H2 results, I reckon, could provide a happy day for shareholders. Me? Well, I’ll need to work out an enterprise valuation estimate once I see the full-year figures. That would include debt, cash, and everything.
Big picture
But even then, I can’t help feeling we could still be missing the bigger picture. The steady move towards home entertainment has received a massive boost from the pandemic lockdown. I personally love the cinema experience. And I don’t do Netflix, or Amazon Prime, or any of those things. So I’ll be back.
But I’m not typical. And I reckon a huge number of people will have turned towards home delivery of content over the past couple of years and won’t be changing back.
In summary, I think Cineworld is a good company and Cineworld shares could be in for a decent 12 months. But it’s in a declining industry, and I try to avoid those.