I used to own shares in London-listed cinema chain Cineworld Group (LSE: CINE). I invested back in 2018 as the conveyor belt of theatre-packing blockbuster movies from Hollywood was clicking through the gears.
I was also excited about the company’s expansion into the gigantic US market following its acquisition of Regal Entertainment earlier that year.
Fast-forward two years and I found myself selling my Cineworld shares at rock-bottom prices. I sold out as the Covid-19 crisis shuttered the company’s theatres en masse. However, this week’s sparkling trading update — one which drove Cineworld’s share price to one-month highs — has reminded me why I bought shares in the leisure chain in the first place.
That’s more like it!
Cineworld’s latest statement showed two things. The appeal of the cinema has remained untarnished by the public health emergency. And, in particular, the popularity of Tinseltown’s big-budget sequels, reboots and adaptations remains considerable.
Attendance at Cineworld’s locations has improved month-on-month since the middle of the summer. Capacity in July sat at 50% of the level in the equivalent month in 2019. But this steadily rose to hit an impressive 90% in October. Performance was particularly strong in the company’s UK and Ireland marketplace. Last month these sat at 127% of October 2019’s levels.
It said that a strong slate of releases helped to underpin strong recent performances. These included latest Marvel Studios releases Black Widow and Shang-Chi and the Legend of the Ten Rings, latest James Bond outing No Time to Die and sci-fi epic Dune.
Cineworld shares: too high-risk?
It would be easy to say that the cinema is back and the dominance of the streaming giants since the Covid-19 outbreak is over. That’d be ignoring the fact that the streamers have also been witnessing impressive momentum of their own.
Take Netflix as an example. The huge amounts it is investing in-house content is paying off handsomely, as shown by the enormous worldwide success of Squid Game. A whopping 111m viewers since September mean that it sits at the top of the platform’s most-ever-watched series.
Dwayne Johnson and Ryan Reynolds vehicle Red Notice has also made history in recent days. The crime caper had the most opening day watches of any Netflix film upon its release on Friday.
That’s not to say that cinema doesn’t have a role to play in the evolving way we consume movies, of course. Cineworld’s strong release this week proves that. But would I want to re-invest in Cineworld today? I’m afraid not.
The strong slate of ticket-shifting blockbuster films is set to continue through the next few years too. But the jaw-dropping $8.4bn worth of debt Cineworld had on its books as of June will still take some shifting.
It will impact its growth plans and shareholder returns for some time to come. And it could again put the chain on the brink of collapse if a worsening Covid-19 crisis forces mass lockdowns again.
However, I’d much rather buy other UK shares right now.