RBC Capital downgrades Cineworld; reviews leisure stocks amid Covid-19

(Sharecast News) - RBC Capital Markets downgraded Cineworld to 'outperform' from 'top pick' on Wednesday, slashing the price target to 200p from 300p as it took a look at the leisure sector and how it might be affected by the coronavirus.
"The leisure sector relies on travel and social interaction and is vulnerable to any material spread of Covid-19," it said.

The bank switched its 'top pick' from Cineworld to Flutter Entertainment, which was lifted from 'outperform' with an unchanged price target of 11,000p. It upgraded InterContinental Hotels Group to 'sector perform' from 'underperform', with a 4,500p price target and maintained Domino's Pizza at 'outperform' with a 350p price target.

Restaurant Group's target price was cut to 120p from 170p but the rating was held at 'sector perform'.

On Cineworld, it said the Cineplex deal was initially greeted with a positive share price reaction but this was before Covid-19 struck and seemingly increased the risk exponentially.

"The market appetite for debt is very low - so even the 3.4x ND/EBITDA for 2020 seems high," RBC said. "An increase to 4.5x proforma and 4.0x including synergies post the deal now seems excessive given the new threat of Covid-19."

As for Flutter, RBC said that at sector level, the gambling companies should be less impacted by any coronavirus impact, noting that Flutter has 92% exposure to online categories.

RBC said that following the recent decline in the IHG share price, it has fallen significantly below the bank's price target and it using the opportunity to upgrade.

"The group has a low-risk business model for hotels based on franchise fees and is well financed and in excellent shape to survive the current downturn," it said.

RBC said Domino's will be one of the least-affected by the virus due to its delivery service.

"If consumers are concerned about going to public restaurants - a pizza delivery may prove an attractive option," it said.

Finally, it said Restaurant Group is in "a really tough position" given its exposure to the leisure restaurants, with a large number co-located next to cinemas and concessions.

"While pubs are more defensive - how consumers take to the more communal seating arrangements at Wagamama remains to be seen," it said.