The Cineworld (LSE:CINE) share price took a pounding throughout the entire pandemic as cinemas were forced to close. And post-pandemic, things aren’t exactly easy for the firm. Today, the shares are down around 45% after the release of an update and trade at 11.5p. Let’s take a closer look at developments.
Today’s statement
Today’s statement made clear that sales and admissions numbers were disappointing and less than anticipated. The firm put this down to a less active film slate.
Filming had been greatly impacted by the pandemic. This was despite the release of successful movies, including Top Gun: Maverick, in recent months.
Accordingly, this will likely mean that current revenue and the wider balance sheet could be lower. This may have several knock-on effects for the broader business.
One potential issue that may arise concerns the firm’s liquidity. If it doesn’t have enough cash to operate its cinemas, then revenue could dry up entirely.
But the business stated today that liquidity shouldn’t be a problem because it’s exploring a number of debt restructuring options. These may include, for example, a listing in the US through its brand Regal.
In addition, it may embark on a share issue, whereby current shareholders like myself could be given rights to purchase a number of new shares based on how many we currently own.
While this may be a potential solution, I could get diluted and my shares may be worth less than before.
Whatever the company chooses to do, it did make clear in the statement that these problems are likely short-term in nature.
The broader business and how I’m reacting
There were issues preceding this statement. The first was the big debt pile brought on by the pandemic. This now stands at $9.23bn. It’s possible that any restructuring measures the firm takes could reduce this giant debt.
Furthermore, it’s fighting a legal battle with Canadian rival Cineplex. This arose after Cineworld withdrew from a takeover deal in 2020. There’s an almost-$1bn fine at stake in this case and it doesn’t seem like Cineworld can afford to lose, based on today’s statement.
Nevertheless, I’m staying calm and holding onto my shares. Just because some negative news came out today doesn’t automatically mean that the share price is going to zero.
In addition, while the recovery in the business may be slower than expected, the financial results do seem to be going in the right direction over the longer term. Between 2020 and 2021, for instance, pre-tax losses shrank significantly from $3bn to $708m. I won’t be panic-selling anytime soon.
When share prices plummet by something like 45% in one day, this can inevitably cause panic among shareholders. While I recognise that today’s statement is definitely not good news and I’m not buying more, I’m sticking to my principles of holding stocks with the potential for recovery for the long term.
