The Cineworld Group (LSE: CINE) share price is drifting lower again as worries over its debts resurface.
News of a bankruptcy agreement with its landlords and lenders helped it soar in early November. But a lack of news since then has seen nervy investors begin heading for the exits.
What does the future hold for Cineworld shares? And should I buy the battered leisure stock for my portfolio?
AMC brightens the mood
Broadly speaking, good news remains in short supply at the cinema chain. Concerns over how it will pay back its huge debts have risen amid disappointing box office in 2022.
So better-than-expected ticket sales at rival AMC Entertainment (NYSE: AMC) have raised hopes of a strong recovery for the company and the broader industry.
AMC — the world’s largest cinema operator ahead of Cineworld — reported revenues above $968m between July and September. This was up 27% year on year and ahead of analyst expectations.
Chief executive and chairman Adam Aron commented that “our recovery continues”, noting that “overall per-patron metrics for both admissions revenue and food and beverage spending remain well above pre-pandemic levels.”
“Not out of the woods”
AMC’s results were certainly cheerier than Cineworld’s most recent offering. Trading at the UK firm was below its expectations for the third quarter. And box office takings are expected to remain below pre-pandemic levels through to 2024.
But the AMC boss was also quick to dampen expectations of a miraculous recovery. Claiming that his company is “not out of the woods yet”, Aron added that “while the box office is unmistakably on the rise, it’s still falling short of pre-pandemic levels.”
The difference between his business and Cineworld, however, is the strength of AMC’s balance sheet. It had healthy available liquidity of $895.8m as of September. This gives it some breathing room ahead of 2023 when some strong movies are due for release.
By comparison, Cineworld had just $4m of cash on hand in September when it applied for bankruptcy protection.
An uncertain future
As I said at the top, worries over the UK company’s balance sheet continue to dominate investor mood.
The numbers surrounding its balance sheet are truly shocking. Net debt stood at an eye-popping $8.9bn as of June. And it burnt through $144.9m worth of cash in the first six months of 2022.
But forget about Cineworld’s perilous financial position for a moment. Even without that burden I wouldn’t buy the company given the uncertain long-term outlook for cinema operators.
Streaming services like Netflix have changed the game. For less than the price of a cinema ticket I can get a month’s subscription to a streaming service. And I have the chance to watch thousands of films at my convenience.
I can watch them in the comfort of my home. Changes to the studio model mean I can catch the latest titles at the same time as (or shortly after) they come out on the big screen too.
So even if Cineworld survives the near term it still faces a hugely uncertain future. Therefore I’d much rather buy other UK shares right now.
