The name’s Bond, James Bond. Licensed to thrill Cineworld (LSE: CINE) shareholders. Mission: prove that for the Cineworld share price, now is no time to die.
It might not be the stuff of Fleming, but just as 007 received a shot in the arm while discussing share prices in Casino Royale, could he now be a shot in the arm for the Cineworld share price?
Cinema attendance cratered in 2020
As his experience in Moonraker showed, Bond knows a thing or two about craters. So he would have recognised the alarming pattern of plummeting cinema attendance last year. In many markets, lockdowns meant that cinema lovers couldn’t watch films on the silver screen even if they wanted to. But many didn’t want to. Amid a pandemic, the prospect of sitting in a darkened room with a host of strangers for a couple of hours had lost its appeal for many people.
Meanwhile, streaming services offered by companies such as Netflix and Amazon led many people to reassess the value of shelling out to see new releases on the big screen. For some at least, that reassessment has endured beyond the pandemic. So while cinema operators have talked up the prospect of cinema’s return, they’ve been keen for a real blockbuster to encourage lapsed customers to line up at the popcorn stand once more.
As Cineworld noted in its interim results in August, “(we) anticipate strong trading in Q4 supported by a strong film slate and pent-up demand for affordable out-of-home entertainment, subject to COVID-19 situation.” The strong film slate to which this referred included the new Bond release. Cineworld was hoping that Bond, rather than his nemesis Goldfinger, could be “the man with the Midas touch” for the chain’s fortunes.
The Cineworld share price and the debt spectre
Cineworld shares are up 156% over the past year. So anyone who invested with a view to a killing 12 months ago has done well. But lately the high-powered performance has gone into reverse, with the shares shedding over 40% of their value since their March highs.
Certainly there are lots of risks here. While the company has large, well-entrenched cinema operations in the US and UK, the pandemic has exacerbated its debt pile. At the interim stage, net debt stood at approximately £6.2bn compared to the company’s current market capitalisation of under a billion pounds. There’s a risk that servicing that debt could at some stage mean shareholders are wiped out altogether. That alone makes Cineworld uninvestable for my portfolio, due to my risk tolerance.
But the company has been working hard to restore its fortunes, cutting its first-half losses. Could the latest 007 film help turn things around? I think there is a strong case it could.
Not only should the film itself provide welcome revenue, I think it could also reactivate a lot of lapsed cinema goers. If they see the new Bond release and remember the joy of cinema, they may get back into the habit of going regularly. That’s exactly what Cineworld needs, to show investors that it’s no time to die. That could boost the Cineworld share price on the expectation of increased revenue and reduced losses, or even a return to profitability.
