Cineworld Group (LSE: CINE) shareholders have suffered in the 2020 stock market crash. It’s one of the biggest cinema chains, and pandemic lockdowns have pretty much suspended that business. As a result, the Cineworld share price has fallen further than most.
At this week’s lowest point, Cineworld shares had lost a whopping 87% since the start of the year. But then came news of the vaccine being developed by Pfizer and BioNTech, which has shown 90% effectiveness in trials. And the US Food and Drug Administration has approved Eli Lilly’s monoclonal antibody treatment, with the tongue-twisting name bamlanivimab.
Cineworld share price climbing
Since the vaccine announcement, the Cineworld share price has jumped 70%. If you were lucky enough to get your timing right and buy before Monday, well done. But, for me, I’m trying to work out whether to put Cineworld on my potential buy list now. I’m a film fan, and I’ve always thought the cinema industry has an attractive long-term future, despite technological advances in home viewing.
But, right now, it all comes down to how I’m trying to make the most of the lockdown crash. I’m trying to separate companies directly affected by the pandemic from those hit by the general economic downturn. I reckon the latter could well be safer recovery buys as we emerge from the crisis. And I think those with fundamentally-damaged businesses could take a lot longer to recover. They might even need some significant refinancing before they pull through.
Fundamentally-damaged business?
I reckon we’re looking at the fundamentally-damaged category here. Should big crowds pile into cinemas before Christmas, I think the Cineworld share price could climb further. But how likely is that?
Well, we’ll be lucky if vaccinations even start this side of Yuletide. And even when it does reach us, it will take some time, purely from a logistics point. A couple of other things will surely hamper the rollout too. For one, the vaccine needs to be stored at -80 deg Celsius, which will be hard to manage. And we’ll need a second dose after three weeks, so that would push even the first recipients well into January and beyond.
To add even more gloom to my bearish thoughts on the Cineworld share price, we have no idea how long any immunity will last. We already have evidence of people catching Covid-19 twice, so it might not be long. And what about mutated strains, like the one widely infecting mink in Denmark?
How to remain solvent?
Even after that negativity, I’m confident cinemas will all open again in time. All Cineworld has to do is remain solvent until then. But I see its share price as still under threat. The company is saddled with debt. And without new funding, it could be in breach of its loan covenants by the end of the year.
Potential financial saviours are going to want to see favourable terms to compensate them for the risk. And what’s favourable for them is likely to be unfavourable for current shareholders. I think it’s way too early to call a recovery, and I’m keeping away from the risk.