It looks like the writing’s on the wall for Cineworld (LSE: CINE) shares after they fell further in recent months. Now, a share price of 1.12p means investors who held shares since 2019 have lost 99.5% of their stake.
But shares are still trading and, in fact, enjoyed a 49% surge last week. So where does this glimmer of hope come from?
More revenue than 2016
The good news here is that millions are still watching the latest releases and munching on popcorn in Cineworld’s theatres.
In fact, since Covid, the company has been raking in money. Revenue is higher than in any year prior to 2016, gross margins are at a healthy 30%, and free cash flow hit £743m in trailing-12-month terms.
This all comes off the back of increasing admissions, which looks just like an impressive post-Covid recovery up to June 2022 (no data has been released since then).
| 2018 | 2019 | 2020 | 2021 | 2022 (6 months) | |
| Admissions | 273m | 275m | 54m | 95m | 83m |
48x increase in debt
The pressing question then: with revenues bouncing back like they are, why is Cineworld in such a mess?
Well, before 2019, the cinema chain was already rocking from the debt it had built up by acquiring rivals like Regal and Picturehouse.
And then the knockout punch arrived in 2020 with Covid. Cinemas were, of course, among the worst-hit businesses during the pandemic.
The company needed more loans to stay afloat and the total debt grew from £213m in 2013 to £8.9bn in 2022.
Now, the financing on that debt is more than Cineworld’s income, which forced it to apply for Chapter 11 bankruptcy late last year.
Cheap at 1p?
The latest news looks positive for Cineworld as a company. Those bankruptcy talks are moving towards a plan to restructure the debt and allow the cinemas to continue to do business.
The bad news? The plan will wipe out shareholders. Their equity will be transferred to creditors who are giving up significant amounts that they are owed.
Anyone who buys in at the 1p share price today is hoping that this plan falls through. Probably only on the off chance that another company comes in at this late hour to acquire it.
Is there any chance of that? After all, there were plenty of rumours going around that the two other big global cinema chains AMC and Vue were both interested.
Days left
The problem here is that the bankruptcy administrators set a final date of 16 February for potential suitors to come forward and none did.
Now, there are only days left until Cineworld has its final court hearing about the bankruptcy on 12 June.
Whatever happens there, and it does seem the cinema operator will continue to do business, the shares have little chance of bouncing back.
