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London Markets: Amid the Reddit-fueled surge for AMC shares, U.K. rival Cineworld mulls a U.S. listing

Shares of Cineworld surged in London on Thursday, as the movie-chain operator beat a low-earnings bar with its results, and said it was considering a listing in U.S. markets.

Up just 2% this year, Cineworld’s
CINE,
+4.96%

battered stock rallied nearly 7%, its best-one day performance since July, a month that also marked the lowest point of the year for shares. Better-than-expected numbers are still “stark,” said Michael Hewson, chief market analyst at CMC Markets, in a note to clients.

The group booked a pretax loss of $576.4 million for the six months ended June 30, well below a $1.64 billion pretax loss a year earlier. But adjusted earnings before interest, taxes, depreciation and amortization swung to a $21.1 million loss from a $53.0 million profit due to pandemic restrictions earlier this year, and revenue slid 59%.

“Unlike its peer in the U.S., AMC Entertainment
AMC,
+1.58%
,
who reported earlier this week, Cineworld doesn’t have the Reddit crew watching its back, while its finances remain in a similarly precarious state, and the stop-start nature of its U.K. reopening won’t have helped, although its U.S. operations should have done better if AMC’s numbers are any guide,” said Hewson.

Read: AMC sees ‘light at the end of this tunnel,’ reaches theatrical deal with Warner Bros.

But Cineworld may be looking on with envy at its U.S. rival, AMC, whose shares have been driven up 1,388% this year. Floating the prospect of a U.S. listing in its interim report, said Moshe Greidinger, the movie chain’s chief executive officer, said the region had become a dominant source of income since the company’s 2017 purchase of Regal Cinemas and a key growth market.

“U.S. equity capital markets are the largest and most liquid in the world and include a large number of publicly listed cinema companies including peer group companies,” said the CEO. “The Board is therefore considering options to maximize shareholder value now and into the future by accessing this liquidity through a listing of Cineworld or a partial listing of Regal in the U.S.”

The company said it had seen a gradual recovery of admissions and demand since re-reopening. And Hewson said it has bought time with plans to restructure finances and raising extra funds last November, and more loans in the next few years, while a strong lineup of movies in the second half, such as James Bond and Top Gun films, could also help.

But while there’s “faint hope” Cineworld could benefit from what individual investor interest has done for AMC, it “doesn’t change the fact that its debt at the end of 2020 was within touching distance of $8 billion.”

“Small changes in sentiment that affect the share price could have a significant impact on the company’s ability to raise sufficient equity to lower net debt. Critical to sentiment should be the Q4 release schedule. The company considers the Q4 release schedule as strong, but we await to see the performance of these films at cinemas before making a more actionable conclusion on the shares,” said Richard Taylor, analyst at Barclays, in a note to clients.

“A downside risk includes consumers being more attracted to watch content on streaming platforms vs the cinematic experience, and this could be heavily influenced by decisions from studios on maintaining a release window. We believe cinemas can deal with a shorter window,” said Taylor.

The FTSE 100 index
UKX,
-0.48%

fell 0.2% to 7,202.94, with basic materials the best performing sector and healthcare the worst. The index was not getting much help from news of a 4.8% rebound in second-quarter U.K. economic growth, largely driven by consumer spending.

Also climbing on Thursday were shares of Aviva
AV,
+3.83%
,
which climbed 4% after the insurer swung to a net loss for the first half of 2021 and reported a rise in operating profit. Aviva also said it would launch a share buyback program of 300 million shares for up to GBP750 million to reduce share capital. 

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