Cineworld (LSE: CINE) released its half-year results day before yesterday, but investors were underwhelmed. In early trading on Friday, the Cineworld share price was down by around 5% from a week ago. Considering that the numbers still look weak, I can see where investor diffidence comes from.
Outlook positive for Cineworld
At the same time, I think that over time, there is a strong chance of it rising. Its cinemas opened only in April and May across its important markets, which is more than half way into the six months under consideration. However, early indications from June numbers are encouraging.
In his review, CEO Moshe Greidinger notes that “it is clear that our customers have missed the big screen experience” and also that “our latest refurbishments and new cinemas are being embraced with great enthusiasm”. In his outlook, he further says that this “gives us great confidence in our ability to continue to rebound strongly”. These clearly bode well for the company.
Also, these are in line with an improved performance for the April-June quarter for its peer AMC Entertainment. Unlike AMC, though, Cineworld has not posted numbers for the latest quarter, as has been its practice. This leaves us with information only for the last six months. But it appears that that the numbers are improving post-lockdown.
Consumers are spending more
Also, since the revenue figures between this year and the last are not entirely comparable, I looked at the revenues per admission to get a better sense of how much consumers are willing to spend. This number has improved to $21 per admission, an improvement of 38% from the same half-year last year. This is driven by both an increase in ticket prices as well as sales of food and beverages.
To me this reflects two trends. One, pent-up consumer demand is being released as entertainment options open up. And two, there is increased ability for consumers to pay more as household savings have risen over the past year of lockdowns. If this is the case, then we can expect to see the trend of increased consumer expenditure during the rest of the year as well. Moreover, if the economy picks up pace, as already appears to be the case, spending can stay strong well into next year as well.
Forecasts for the Cineworld share price
With this as the backdrop, I reckon that the Cineworld share price can rise now. Optimistic analysts expect its share price to increase to around 151p in the next 12 months, which is a huge increase of 144%. If they are correct, it can more than double. Even on average, an over 37% increase is expected. Analysts estimates are subject to change, of course, as the situation evolves.
What I’d do
But going by the indications so far as well as the extent of vaccinations done, I think it is reasonable to assume upside to the stock. I have long been advocating in favour of it. In fact, I bought it a while ago. But considering how much possible upside there is to it, this is a good time for me to buy some more.
