RE: Why is the SP down 20% in 2 weeks?15 Sep 2020 13:20
@investroid
1. Cineworld published a number of RNS’s relating to Covid-19, much earlier than 3 months. They announced back in early March that:
a) They did NOT observe ANY material impact on movie theatre admissions.
b) They saw an INCREASE in admission for the first two months
c) They were on the front-foot taking measures to look at cost reductions
The additional liquidity and their statement that they had enough money to see them through to the end of the year with all cinemas closed, followed in April and May. Couple this with the well-known fact that occupancy needs to be just 20-25% for Cinemas to return a profit, means reduced footfall isn’t a concern about the ability to weather the storm and this is the big point: No one expects Cineworld to recover 100% to pre-covid admissions this year. It won’t happen. What we do want to see is, amongst other leisure stocks, resilience and the ability to remain afloat to see out the pandemic and then move to next year when a vaccine will be widely available (see government orders and commitments from pharma to support).At this point it is a safe assumption that we will see attendance recover to 100%.
2. Fitch REMOVED Cineworld from Negative watch and clearly stated, liquidity and cash flow risks had been alleviated. I reference both as Grade B because Rolls is a FTSE100 and is suffering but it will endure and will recover in time, much the same way as Cineworld. AMC absolutely can be compared, they are both cinema operators with their largest presence in the US. The market has accordingly priced their share price at 80% pre-covid, call it what you want, it’s their in black and white and cannot be dismissed. This tells you that confidence has restored, despite a bleak H1, AMC were able to demonstrate to investors they can weather the storm despite facing Chapter 11 and on the brink of collapse. Lenders took a decision to afford them more money because they aren’t so short sighted or desperate to drive down a share to establish a lower entry.
3. There IS evidence to suggest that Cineplex broke the covenants. I’ll refer you to the RNS from Cineworld. This is a LEGAL publication, not a ramp or de-ramp on a BB. This made it clear that Cineworld consulted their legal team who gave them the authority to pull out of the merger because Cineplex BREACHED MULTIPLE debt covenants. This will be discussed in a court however and the date for this is next year, September 2021. Let me ask you this, what do you think will develop and mature in 12 months’ time? I’ll answer that: progress on resolving the pandemic, a number of global vaccines, admissions back to 100% and for remediation to take place between both parties which could present an amicable outcome. Perhaps even another merger on revised terms which would see Cineworld EXPAND and in turn reflect a higher market capital and share price! Entirely speculative but if you can do this, so can I, right?
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