The Cineworld Group (LSE: CINE) share price has been one of the worst performers in the London market over the past year. Indeed, its shares crashed so hard in 2022 that this once-booming business is now valued at just £50.8m. But could a white knight ride to Cineworld’s rescue?
Covid kills the Cineworld share price
On 18 April 2019 — under four years ago — Cineworld shares were riding high, closing at 319.6p. But less than 12 months later, Covid-19 went global, sending stock markets plunging. With lockdowns and social restrictions in place, UK cinemas spent long periods of 2020-21 completely closed. This put Cineworld under huge strain, causing its shares to implode.
By 16 October 2020, the shares had collapsed to close below 25p. But then came ‘Vaccine Monday’ (9 November 2020), with news of highly effective coronavirus vaccines. Cineworld shares skyrocketed, closing at 122p on 19 March 2021. Alas, it’s been all downhill ever since for Cineworld shareholders.
Why hasn’t CINE hit zero yet?
At its 52-week high, Cineworld stock hit 45p. As I write, it hovers around 3.73p — still more than double its 52-week low of 1.8p on 19 August 2022. But with the company facing an existential crisis, why isn’t this stock trading at or near 0p?
One reason could be that Cineworld share traders are playing a game — perhaps Chicken, Hot Potato, or Pass the Parcel? The idea might be to buy this bombed-out stock for pennies, hoping to sell for a higher price if the stock spikes. This is known as the ‘Great Fool Theory’ — and it almost always end badly.
Could AMC Entertainment buy Cineworld?
The latest news is that Cineworld — already in US Chapter 11 bankruptcy proceedings since early September — will put its entire estate up for sale. One party interested in this fire sale is larger US rival AMC Entertainment Holdings. (At around $2.2bn, AMC’s market capitalisation is about 43 times that of the much-diminished Cineworld.)
One big hurdle is that Cineworld had around $5.2bn (£4.3bn) of debt as at mid-2022. This equates to roughly 85 times its current market cap. To me, this suggests that Cineworld is just a huge (and troubled) bank loan with a tiny (and loss-making) operating business attached.
With a formal sales process due to start this month, there might just be some hidden value lurking inside Cineworld. Then again, with its bonds and loans having plunged in value, it appears unlikely that shareholders will get anything from the crisis-hit company’s carve-up. Indeed, the group warned today that there was “no guarantee of any recovery” for shareholders.
Also, with AMC Entertainment facing lower cinema attendances, it could struggle to raise fresh capital to buy some or all of Cineworld. And that’s despite its fanatical meme-stock fans (known as ‘Apes’).
In summary, I wouldn’t go near Cineworld shares with the proverbial bargepole. To me, they are trading on hope and thin air. Furthermore, I don’t expect anyone to ride to the company’s rescue before it collapses into insolvency, but I could be wrong!
