Cineworld (LON:CINE)
Price has dropped yesterday, trading around 258p. CINE released a RNS saying their Auditors KPMG have pulled out of the tender process and a letter from KPMG is listed on CINE website citing commercial reasons for withdrawing “…we declined to participate as we did not consider that it was likely that we would be able to agree acceptable commercial terms.”.
While this is a fairly benign reason, my years of experience working with these firms is they always bid, load in their rate-card price and up to you. So I’m a bit cross-eyed on this. Glass half full says they couldn't agree on some onerous accounting treatment.
Last trading results show declining LFL revenues, citing due to timing of blockbusters, I.e. film release variability.
CINE is now on a PER of 9.78 and dividend yield of 5.6%. Cashflow generation is strong. It’s a company I have been interested in for a while because of this, but I don’t own any.
Valuation looks cheap, but they loaded up with debt for the acquisition, currently net debt USD 3.7B on earnings 459m (from Stocko)
The existential threat is netflix kills them off, but I believe people still want the experience and wrap up a cinema visit with dinner, games (e.g. bowling) etc.
If they stopped buying things, focused on cashflow, paid the dividend, paid down debt, this seems ok.
Is there a greater risk I have missed ?
Shares went down on special divi yesterday.
I think you have summed up many of the reasons.
That said, I don't think it is necessarily cheap. Looking at their results pre merger-, it is clear that revenues were not going anywhere, which is understandable.Cinema prices and refreshment prices seem very difficult to increase (some would argue they are expensive enough already), the premium format being done by Everyman, the pictures as a pastime becoming no more popular, and the potential of films to bypass the cinema altogether and release on Netflix at the same time. If anything a slight structural decline.
Given that there are plenty of other High Street firms that are suffering the same prospects, and trade at similar ratings but without the excessive debt.
Thought it was quite a good business before Regal but I disagreed with the merger. I do think the industry is ripe for disruption somewhere down the line.
