(Alliance News) - Peel Hunt on Tuesday said picture house operator Cineworld Group PLC has an uncertain future, as the broker awaits more news about the FTSE 250 firm's appeal against hefty damages in relation to its move to cancel a takeover of Canadian peer Cineplex.
Back in December, Cineworld was told to part with CAD1.23 billion, about GBP718.1 million, after a Canadian court ruled against the company in a case brought by jilted takeover target Cineplex.
The Ontario Superior Court of Justice decided in Cineplex's favour and awarded it damages of CAD1.23 billion from Cineworld for lost synergies and CAD5.5 million for lost transaction costs.
A Cineworld counterclaim was dismissed, though the company said it will appeal the judgment.
Peel said the outcome of the appeal will be key to Cineworld's stock market performance.
The company on Tuesday said it has kicked off talks with former dissenting shareholders of its Regal Entertainment unit. Cineworld is bidding to delay its payments under an unsecured facilities pact which is related to a judgement made in favour of Regal Entertainment's former shareholders.
Cineworld in September said it will pay USD170 million as part of the judgement in favour of former shareholders of Regal.
The company said on Tuesday: "In order to facilitate these discussions, Cineworld has obtained waivers of, or undertakings to waive, any events of default arising from non-payment under the unsecured facility agreement from various other creditors. These creditors include certain holders of Cineworld's guaranteed convertible bond due 2025 as well as the lenders under certain of its existing debt facilities.
"Cineworld has initiated discussions with the Regal litigation parties with the aim of maximising its available liquidity and is hopeful that a satisfactory agreement can be reached within the period afforded by the waivers."
Cineworld's effort to preserve cash in unsurprising, given a weak slate of film releases so far this year. However, it is the success of Cineworld's Canadian court appeal that is likely to be a bigger driver for its share price performance.
"We reiterate our Hold recommendation, which reflects our uncertainty over the potential binary outcomes of that appeal," Peel Hunt said.
Peel has a 32 pence price target for the stock. Cineworld shares were 3.3% lower at 37.95p each in London on Tuesday afternoon.
AJ Bell analyst Russ Mould added: "The saga at Cineworld is starting to feel like a rival to the Marvel Cinematic Universe for longevity as the cinema operator looks for leeway from former shareholders in its US Regal Entertainment business over payment obligations.
"Cineworld should be a beneficiary of cinema's revival in the wake of the pandemic but whether the market will recognise this given the mess the company finds itself in is open to question."
By Eric Cunha; ericcunha@alliancenews.com
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