Throughout my life, going to the cinema has ranked among my most exciting and enjoyable everyday treats. Like many, I love going to see the latest blockbuster, thriller, comedy or sci-fi extravaganza. It also drives me crazy when people talk, use their phones or eat noisily during the feature. But I don’t have that problem right now. Cinemas worldwide are mostly closed due to lockdowns. But following the Cineworld (LSE: CINE) share price has been an epic saga in its own right.
The Cineworld share price crashes
For a close-up of the corporate damage done by Covid-19 in 2020, I kept an eye on the Cineworld share price. Two years ago, on 29 April 2019, CINE shares closed at 321p, nearing their all-time highs. But the stock then eased off, closing 2019 at 219.1p. As Covid-19 infections spread worldwide, Cineworld shares almost died. On 17 Mar 2020, they closed at 21.38p, crashing almost nine-tenths (90.2%) in less than three months. At this time, Cineworld shareholders must have thought they were in a horror movie.
Cineworld survives the pandemic
Happily, like the main protagonist in a teen-scream movie, Cineworld lived to fight another day. In order to survive, the group raised several rounds of fresh capital and liquidity from its shareholders and lenders. Just a month ago, Cineworld raised another $213m by issuing a convertible bond with a 7.5% coupon (yearly interest rate).
These emergency actions helped to bring the business — and the Cineworld share price — back from the dead. By early June, the share price briefly topped £1 and closed at 99.44p on 8 June. But as Covid-19 infections multiplied, the shares sank. On 28 October, the stock closed at 24.32p, around 3p above its low during ‘Meltdown March’ 2020.
Then early November brought news of several highly effective Covid-19 vaccines. This sent battered UK shares — and the Cineworld share price — soaring. On 19 March 2021, they closed at 122p, up a stonking 401.6% to reach five times their October low. But they have since declined to close at 95.66p on Friday.
CINE needs a boom
Cineworld is the world’s second-largest cinema chain. At the end of 2020, it had 9,311 screens across 767 sites in 10 countries. It employs 30,000 people. In 2020, its revenues reached $4.37bn, but lockdowns crushed this to $852m in 2020. Even worse, the group lost $3bn last year ($212m profit in 2019). Net debt now stands at $8.3bn (£6bn). It’s clear why the Cineworld share price almost died.
That said, there’s a big business with a sound operating model at the heart of Cineworld. All it would need to recover would be a film-going boom lasting from 2021 to, say, 2023 or beyond. If consumers go out and spend, spend, spend, this would be great news for the Cineworld share price. But that hope is under threat from the hyper-growth of streaming-video services that compete aggressively for consumer dollars and pounds.
What next for the Cineworld share price?
In the US, where Cineworld gets almost three-quarters (73%) of its revenues, cinemas have already reopened in several states. UK screens are set to follow next month, from 17 May. If film-goers do start splurging on popcorn and drinks, then the Cineworld share price might be an excellent recovery play. But the firm will need huge cash flows to meet gargantuan debt repayments. If I were a growth investor, I’d bet on CINE. But, as a veteran value investor, I’ll pass for now!
Cliffdarcy 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.