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 ?

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