Cineworld shares more than halve on news of temporary closures

Shares in FTSE 250-listed Cineworld have more than halved today after the giant said it will temporarily shut down all of its cinemas in the UK and the US, affecting around 45,000 employees in the two countries.

The cinema giant, which blamed the decision on delays of major film releases and an ‘increasingly challenging’ situation for the sector, had warned only a couple of weeks ago that a second lockdown could put its future at risk.

Cineworld shares crushed as much as 56 per cent to 17p in early trade, although they settled to to close down 36 per cent at 25.20p on Monday. They are down about 90 per cent since the start of the year, when they were trading at around 220p, before the pandemic struck. 

Crash: Cineworld shares more than halved in early trade to recover slightly later on

However, its shares had been on a downward trajectory even before, as the chain struggled with high levels of debts and declining demand.

Michael Hewson, chief market analyst at CMC Markets UK, said: ‘Even before the February, March sell-off Cineworld’s share price had been in a steady decline weighed down by declining footfall and high levels of debt after the acquisition of the US Regal chain a few years before, and a modernisation programme that was proving to be more expensive than originally anticipated.’

Cineworld will shut 127 Cineworld and Picturehouse theatres in the UK from this Thursday, putting 5,550 jobs at risk. It will also close its 536 Regal theatres in the US. It didn’t say when it would reopen them, only that it would continue to ‘monitor the situation’. 

Cineworld has been hammered by the pandemic, which has led to many movie studios delaying the release of major blockbusters, such as the new Bond movie, or sending them straight to streaming networks. 

On Friday, the release of the new Bond movie ‘No Time to Die’ was delayed for a second time until April 2021. The movie joins other potential hits such as Black Widow and Wonder Woman: 1984, which have been also delayed by the pandemic.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘Although the delay of the latest 007 blockbuster prompted the decision, Bond isn’t the villain in this piece. 

‘The spread of Covid-19 around the world has been a horror movie for the industry and the fresh wave of infections is the latest installment in what’s been a devastating story for cinema chains.’

On Friday, the release of the new Bond movie ‘No Time to Die’ was delayed for a second time until April 2021

Cineworld, which last month unveiled £3.1billion losses for the first half of the year, said then that it would ‘likely’ be forced to raise further cash if governments brought in further restrictions to prevent the spread of Covid-19.  

At the time, it said that in a ‘severe but plausible scenario’ where a second wave of the pandemic caused further lengthy cinemas closures, then it would breach banking agreements in December and June 2021 and need further financing to continue to operate from early next year. 

Analyst Neil Wilson said today’s announcement confirmed that the company is on the brink.

‘In its interim results last month, the company warned that a worsening of the pandemic could leave it unable to survive; today’s announcement confirms that it is on the brink,’ he said.

He added that the chain, saddled with debt and falling demand, had little choice but to close down its cinemas.

‘Without the Bond franchise to draw people in there was little option – closing its theatres at least gives it a chance to preserve cash and wait for things to improve.’ 

On Friday, credit ratings agency Moody downgraded Cineworld’s rating and warned that more closures and film release delays would see Cineworld ‘easily’ run out of money.

It said in a note last week: ‘Moody’s decision to downgrade Cineworld’s ratings to Caa3 from B3 reflects the significant operating challenges facing the company as the coronavirus outbreak prolongs globally with a high degree of uncertainty around a potential second wave that could have more severe impact on the business performance.’ 

Wilson added that a refinancing by some sort of rights issue seems now ‘inevitable’. 

But he added: ‘However, I fear there have been permanent behavioural shifts in consumers that will mean the market is forever smaller. 

‘The advance of over-the-top streaming services, especially Netflix with its vast Hollywood budgets and ability to make feature films, has been a critical blow to the industry and Covid has vastly compounded the problem by keeping viewers away.’

Cineworld shares have not recovered since March’s crash and are 90% down since the start of the year, when they were trading at around 220p

Russ Mould, investment director at AJ Bell, said: ‘Shareholders have suffered a 50%+ slump in the share price upon the latest news and any equity raise is likely to be done at a discount to the already-depressed market price. That may prompt Cineworld to see if can use more debt rather than equity to prop up the business.’

Meanwhile, thousands of Cineworld staff look set to lose their jobs as the new Government support scheme that replaces furlough from the end of the month only covers those who can work at least a third of their normal hours.

Streeter added: ‘The news will increase the clamour for more support for the entertainment, recreation and arts industry which still has 51 per cent of workers on furlough

‘The new jobs support scheme, which will subsidise wages of part time workers will provide no lifeline for the 5,500 Cineworld UK employees who will lose their jobs this week and many others across the industry are facing a bleak winter on jobseekers benefit, while they begin the difficult search for new positions in the run up to Christmas.’