Cineworld shares under 1p with bankruptcy exit in sight

Cineworld’s share price has flopped badly over the past 12 months and now trades for under 1p. The debt-ridden cinema chain has announced that it will exit Chapter 11 bankruptcy proceedings in July, although a restructuring deal struck with creditors leaves nothing for existing shareholders. This is all happening as the wider industry continues to recover from the pandemic.

• Year-to-date Cineworld’s share price is down over 75%, closing Friday 2 June at 0.885p.
• Cineworld due to exit bankruptcy in July, but restructuring plan wipes out existing shareholders.
• Cinema industry continues to recover, with US box office grossing $7.5bn in 2022, up from $4.5bn in 2021.

Cineworld’s [CINE.L] share price has dropped over 96% in the past 12 months and is now trading below 1p, having closed Friday 2 June at 0.885p. Year-to-date, the stock is down over 75%. In contrast, rival AMC’s [AMC] share price has managed a 14% gain since the start of the year.

The big drag on the Cineworld share price are court-supervised bankruptcy proceedings in the US, which will come to a close in July. So, what’s next for Cineworld shares as it exits bankruptcy? And are there other options for investors interested in backing a recovering cinema industry?

Cineworld to exit bankruptcy in July

Cineworld has announced it is to exit Chapter 11 bankruptcy proceedings in July, having received backing for a restructuring plan from its creditors.

In April, the company had announced the plan would reduce debt by around $4.53bn, raise $800m in equity for lenders, and provide $1.46bn in fresh capital. That same month Cineworld said it had halted plans to sell its UK and Ireland businesses.

Cineworld confirmed that the restructuring plan would not provide any recovery for existing shareholders.

“In light of the level of existing debt that is proposed to be released under the Group Chapter 11 Companies’ plan of reorganisation, the Proposed Restructuring does not provide for any recovery for holders of Cineworld’s existing equity interests,” Cineworld said in a statement.

A small band of shareholders owning around 7% of Cineworld shares have launched a last-ditch challenge to the restructuring plan, reports the Evening Standard. They argue that the valuation of Cineworld used in the plan is “inaccurate, biased and unreliable”. The shareholders say that a valuation of $3bn for the company would allow some funds to be redistributed. The complaint is due to be considered by the court on 28 June, along with the restructuring plan. 

Are Cineworld’s shares a flop?

Cinemas were one of the worst-affected industries during the pandemic. In 2020 the US box office grossed just $1.9bn, well below the previous year’s $11.2bn, according to industry website The Numbers.

Yet 2022 provided signs that the industry is recovering. Top Gun: Maverick grossed $1.5bn globally, which was then topped by Avatar: The Way of the Water’s $2.32bn haul. Total US box office gross that year came in at $7.5bn, well ahead of the $4.5bn in 2021. 

This year the US box office has already racked up over $3.5bn. AMC posted its strongest first quarter in four years in May. Revenue for the three months ending 31 March 2023 was up 21.5% to $954.4m, while net losses improved by $101.9m to $235.5m.

With the industry in recovery mode are Cineworld shares worth considering? While the stock is trading below 1p, buying represents a significant risk, as the company has said that shareholders will be wiped out by the restructuring plan. With days left before a final court hearing on June 12, a last-minute turnaround in fortunes might be unrealistic.

For those interested in backing the revival of the cinema industry, it might be better to wait to see what happens after Cineworld exits bankruptcy. Another option could be AMC, which is still trading below its pre-pandemic levels. AMC’s stock closed Friday at $4.55; it had been trading at over $7 in February 2020.