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Cineworld share price boosted by a better second half

Cineworld share price: a Cineworld sign glows at the entrance to one of its cinemas.

Cineworld’s share price climbed 2% in early trading in London, after the company's preliminary full-year results showed signs that cinema-goers are returning to the big screen as pandemic-era restrictions are peeled back.

Full-year results show signs of improvement

Today’s preliminary numbers put full-year 2021 revenue at $1.8bn, a rise of 112% from the previous year's $852.3m, while admissions rose by 75.2% to 95.3m. This helped the company post an operating profit of $15.8m, though that may be of only modest comfort when compared to its other liabilities. Losses after tax came in at $566m, a significant improvement on the 2020 loss of $2.65bn, but still indicative of challenging times. Despite management's optimism, some of these challenges will persist this year. 

At 95.3m, admissions came in below market expectations, as did full-year revenue when compared to sector peer AMC Entertainment.

The US remains Cineworld’s biggest market, and performance there shows how much further there is to go on the admissions front. In 2019, US admissions were 177.3m, while in 2021 they came in at 56.2m. In the UK, admissions in 2019 were 48.2m, while in 2021 they totalled 18.2m.

Clearly, then, Cineworld still has a long way to go before admissions are back at pre-pandemic levels. The road to recovery will not be easy to navigate, as a cost-of-living squeeze and an uncertain economic outlook in both the UK and US could prompt film fans to tighten the purse strings. 

Cineworld share price enjoys a brief respite

Although the Cineworld share price gained ground in early trading this morning, it later slid and by noon was down 0.6% for the day. Taking a longer view, over the last 12 months the stock has had a shocker. This time last year the shares had rallied as high as 120p amid optimism over the post-lockdown reopening of cinemas and other leisure venues, but the shares now sit below 40p.

Although the optimism that cinema revenues would quickly recover has largely disappeared, they have improved in the last six months. In the first half of last year, Cineworld reported revenue of $292.8m, well below the figure reported for the first half of 2020 when cinemas operated as normal until March. In the second half of 2021, revenue grew to just over $1.5bn.

If this second-half performance can be replicated through this year then it's reasonable to assume that in 2022 full-year revenue could top $3bn, although even that would fall some way short of 2019 levels when full-year revenue came in at $4.37bn.

Mixed outlook

In January, Cineworld reported that group revenue in December came in at 88% of 2019 levels, up from 56% in November – an encouraging development, especially given the restrictions that were imposed to curb the spread of Omicron in December. Cineworld’s US operation led the way, with December revenue at 91% of 2019 levels, while for the UK the figure was 89%. 

Cineworld's main headwind remains its recent court case with Cineplex, which Cineworld lost. The Ontario court ordered Cineworld to pay Cineplex damages of C$1.23bn for lost synergies and C$5.5m for lost transaction costs. Cineworld has appealed, which makes sense given its already high level of debt. One questions where they will find the money if the original verdict is upheld. The group has made no provision for any liability in respect of that judgement, highlighting the chain’s precarious financial position.  

The silver lining for this year is a strong upcoming film slate, which includes a number of new blockbuster titles including The Batman, Top Gun: Maverick, Jurassic World: Dominion, and a new Fantastic Beasts film, all of which should contribute to a significant pick-up in revenue, provided that Covid disruptions remain in the rear view mirror.

However, despite the positives, with debts of $8.3bn a lot will need to go right for Cineworld if it is to see a sustained improvement in its finances. 

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