Cineworld looks at risk of going bankrupt if the company cannot secure debt finance. Shareholders could be diluted or a private takeover could be possible.
Cineworld (LON: "CINE") released a statement on Wednesday warning of a lack of big-budget movies which will and is hitting ticket admissions. This is likely to continue until at least November and given the already complicated payment obligations fine with Cineplex Canada, it looks as though shareholders will become diluted in a race to save the company and raise equity. Let's look at the charts and financials.
Just like many companies which involve some level of social interaction, covid 19 has made a huge indent into Cineworld’s financials. In March, Cineworld reported 2021 revenues of $1.805 billion. Operating profit also rebounded, reaching $15.8 million, up from a 2020 loss of $2.258 billion. The group overall recorded a $708.3 million pre-tax loss across the Covid-impacted year in which cinemas were closed for most of the first half. This was a substantial improvement on the 2020 loss of just over $3 billion. Also, adding the $8.4 billion dollars in debt accumulated by the company. Analyst project that in 2022 Cineworld has the potential to accumulate $420 million dollars in surplus cash, which could be utilised to start paying off their excessive debts.
Currently trading at 4.25p a share after a massive 65%+ drop. Overall, a 80% decline YTD Cineworld has consistently been bearish the whole of 2022 and really since its peak price in May 2019 at 319.17p. the RSI is showing 18.02 on the daily which signifies a level of over selling and the MACD has not been positive for the entirety of 2022. But most concerningly there has been no notable levels of support or resistance marked out signifying that there is still for more room for the price to fall, if Cineworld goes bust or is prone to a private takeover or bailout, shares could easily fall to 0 or be delisted at a fixed price.
Overall, with a combination of the current cost of living crisis’ gripping many economies around the world, leaving less people with disposable income to spend in the cinemas and a bottleneck in the film industry slowing down major title releases. On to top of Cineworld’s massive debt figure it makes the outlook very poor for the company. Minipip gives Cineworld a very bearish and negative outlook for now.
