I estimate Cineworld (CINE) is worth c. 2p per share, as noted in yesterday's bearcast. Perhaps my greatest flaw is overkindness. It is a real failing, with which I constantly struggle. Anyhow, Evil Banksta - being a banksta - has no such problems, and takes me to task for my generosity. He explains:
The Mrs is threatening to take me on a hot date to see Downton Abbey at our local Cineworld (CINE). With a seventeen month old baby, any date will do. Even that one. But will even our custom be enough to save Cineworld’s shareholders from losing almost everything? Er…no. There is more bad news today, signs that Cineworld really is scrabbling round at the back of the sofa for any loose change.
I see that amid some optimism that we might see peace in Ukraine the FTSE 100 is staging a bit of a rally as I write. And with that all sorts of stocks among the small and mid-caps are heading higher. Of course, I pray for peace. If we get it then all stocks will be marked higher but for how long?
It would be churlish not to concede that if the aim of Cineworld’s (CINE) £3 tickets on Saturday was to pack cinemas, then the company succeeded. I am hearing numerous reports of packed theatres and even of some folks being turned away as all seats were sold out. Assuming that the folks buying the tickets gorged on diet Pepsi and sweet popcorn as is the norm, then Cineworld will have been profitable this weekend just gone. But ...
The maths of running a movie theatre are simple. Ticket sales cover all your costs and the profit you make is on the hugely expensive high margin junk food, sweets and teeth rotting drinks you flog. But when audiences slump that means fewer tickets so costs are not covered and then tubs of ice cream sold so one struggles overall to cover costs. That brings us to Cineworld (CINE).
Lucian Miers and myself have repeatedly called out Cineworld (CINE) as a compelling short and those who have followed our calls have prospered. But the FT, the home of almost every wrong call in history from backing the UK joining the Euro to selling its gold in 1997, runs a story “Cineworld debt pile set to save cinema operator from bankruptcy.” You might think this is a reason to buy. Au contaire. A resting banksta writes to me to explain.
Cineworld (CINE) reckons that as the world emerges from the scamdemic its trading is improving helped by some really great movie releases. I am not quite so sure about that and today’s trading update misses out the most critical number investors need to see, the movement in the vast debts in which this company is drowning. That omission tells you all you need to know.
I trust that numerous warnings from myself and Lucian have allowed you to make good money from shorting Cineworld (CINE) all the way down. The shares have collapsed this week on news that it has lost a Canadian court case and is on the hook for C$1.23 billion but that merely accelerates the end game here. Do not even think of closing your short at 31p. My target is buttons. Post an inevitable debt for equity swap and bailout placing this is a penny share.
We have warned numerous times on this website that Cineworld (CINE) is drowning in debt and thus needs a debt for equity swap and a massive fund raise which will dilute all current shareholders massively. Our complete coverage is HERE — nobody could say we have not got this 100% right. Could things get any worse? They just did.
In its November 15 trading update Cineworld (CINE) included a table, which compared revenue from months in 2021 with revenue from months in 2019. This was an attempt to illustrate that cinema viewings were returning to pre-covid levels, the CEO specifically commented that “We are thrilled to see audiences returning in significant numbers”. As Tom pointed out then, Cineworld made these comparisons notwithstanding that October 2021 had five weekends whilst October 2019 only had four weekends. Given that cinema viewings tend to cluster around the weekend, this meant that the October 2021 numbers artificially appeared stronger than reality.
In the last week shares in Cineworld (CNE) rose 25% from 66p to 83p, adding around £230 million to its market cap. To put that number in perspective it represents more that its entire profit before tax in 2019, the last full year without Covid.
