Will a US listing help the Cineworld share price?

Rupert Hargreaves explains why the Cineworld share price may benefit if the company decides to raise extra cash in the US.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Cineworld (LSE: CINE) share price jumped at the beginning of August after the company reported its results for the first half.

The results themselves were pretty awful. However, the market was focusing on management’s statement that the company was considering several strategic options for raising cash, including a US listing. 

In particular, the update noted that following the acquisition of Regal in 2018, the US now accounts for a “substantial majority” of group revenues. This market also “remains a key market for future growth.

It went on to add that the US capital markets are the “largest and most liquid in the world.” They also include a “large number of publicly listed cinema companies including peer group companies.

These US-listed companies are “typically covered by a significant number of North American equity analysts with a wide domestic investor following.” Therefore, the firm is considering “options to maximise shareholder value.

These may include a “listing of Cineworld or a partial listing of Regal in the US.

The US option 

It seems to me as if Cineworld management has been watching rival AMC‘s share price performance over the past 18 months. Frenzied investor buying sent shares in the cinema company surging at the beginning of the year. This allowed the corporation to issue more stock and raise cash to strengthen its balance sheet. 

Even though the two businesses are roughly comparable, the lacklustre performance of the Cineworld share price means the company is valued at less than £900m today. AMC is worth nearly $25bn (£18bn). 

If management does pursue a US listing, Cineworld’s valuation could re-rate higher. Compared to AMC, the stock could be worth more than 10 times its current price, in the best-case scenario. 

But this isn’t guaranteed. Just because investors have been happy to buy into AMC recently, doesn’t mean they’ll repeat this performance with Cineworld. Indeed, much of the buying in AMC has been from smaller retail investors who’ve been using leveraged bets via the options market. This might not be sustainable. 

The outlook for the Cineworld share price 

That said, a US listing or spin-off could provide the group with a much-needed cash infusion. With around $5bn of debt and interest costs totalling $343m in the first half, Cineworld’s financial position is concerning.

If a US listing provides cash to pay down debt, the company’s financial position could change significantly. It may also drive a faster return to profitability. 

While there’s no guarantee a US listing will help the Cineworld share price, I think, on balance, if the company can raise money and reduce debt, the outlook for the enterprise will improve significantly. And this may convince the market that the group deserves a higher valuation. 

Still, despite this potential, I wouldn’t buy the corporation for my portfolio today. I think its outlook is far too uncertain, and there are other companies I’d rather own in my portfolio. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

How I’d invest £5,000 in FTSE 100 shares to aim for a million

The FTSE 100 is home to many potential gems. Our writer considers if he can reach millionaire status by uncovering…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

How I’m aiming to become a Stocks and Shares ISA millionaire!

The Stocks and Shares ISA is an excellent vehicle for investments. In fact, many investors have become ISA millionaires. Here's…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

The Scottish Mortgage share price is on the up! Here’s why I’d buy

After a poor first half of the year, the Scottish Mortgage share price is beginning to rise. Here, this Fool…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I be grabbing cheap Lloyds shares?

Lloyds shares have underperformed in recent years. Here, this Fool explains why he's still considering the stock for his portfolio.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

How I’m using UK dividend shares to try and turn £20,000 into £100,000

Our writer has ambitious investment goals -- and patience. Here he explains how he's buying UK dividend shares to try…

Read more »

Middle-aged lady in wheelchair writing on whiteboard
Investing Articles

I’m taking a defensive stance by investing in the FTSE ahead of the recession

The FTSE has outperformed several indices in 2022, including the S&P 500. Jacob Ambrose Willson believes it can be used…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy BP shares today?

BP is generating huge profits right now. Here, Edward Sheldon looks at whether he should buy shares in the oil…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Should I buy Rolls-Royce shares after the latest results?

Jon Smith runs over the key points from half-year results for Rolls-Royce shares to see if any green shoots are…

Read more »