Cineworld Group (LSE: LON:CINE) has been attracting a lot of buyer attention in recent weeks. The FTSE 250 company’s risen after announcing plans to re-open its US and UK theatres in mid-July.
It shot higher on Tuesday too as the government announced it was replacing its 2 metre social distancing rule with a ‘1 metre plus’ requirement. This is important as it means the business can fill out its cinemas more effectively.
Investors haven’t just been toasting news concerning reopenings though. Last week, Cineworld announced it was pulling out of its $2.1bn deal to buy Canadian operator Cineplex. This was much to the relief of those worried about the state of its balance sheet. It also secured a $250m loan from private investors to bulk up its finances.
Screen star All this comes as relief to me as a Cineworld shareholder. I’m under no illusions the FTSE 250 company isn’t quite out of the woods yet. It still has to get that colossal debt pile down to a more palatable level. And it would have to shutter its theatres again in the event of a second wave of Covid-19 infections.
But these more recent developments provide reason for optimism. They also give licence for the leisure giant’s share price to keep rocketing higher (it’s up 264% from its 2020 troughs). Indeed, provided there’s no serious deterioration in the coronavirus saga then things could get better and better for the company.
Major movie postponements owing to Covid-19 can now start hitting Cineworld’s theatres, starting with Christopher Nolan’s much-talked-about Tenet in July. In fact, there’s plenty of cinematic gold for the world’s cinema operators to savour over the next few years.
A FTSE 250 bargain? 2020 always promised to be a disappointing year for ticket sales, due to a threadbare lineup of franchise films and other blockbusters. However, the outlook through to the middle of the decade continues to look quite strong, with plenty of fare from the box-office-driving Disney juggernaut scheduled in particular.
Much has been made of the ‘Death of Cinema’ in the streaming age. But there’s actually little evidence to back this up. The global box office recorded an all-time high of $42.5bn in takings just last year, driven by the likes of Avengers: Endgame and The Lion King from Disney.
Going to the movies is one of those social outings that’s timeless. And, essentially, it’s not that expensive either, meaning that Cineworld’s takings should hold up even in the face of a severe economic downturn.
Despite its recent share price gains, this FTSE 250 firm trades on an undemanding forward price-to-earnings (P/E) ratio of 14 times. It’s a reading that fails to reflect Cineworld’s still-compelling profits outlook for the years ahead, in my opinion.
I reckon the cinema operator is highly attractive at current prices around 80p.
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Royston Wild owns shares of Cineworld Group. The Motley Fool UK owns shares of and has recommended Walt Disney (NYSE:DIS) and recommends the following options: long January 2021 $60 calls on Walt Disney and short July 2020 $115 calls on Walt Disney. 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.
Motley Fool UK 2020
First published on The Motley Fool
