2020 has proved to be a hell ride for the Cineworld Group (LSE: CINE) share price. It started the year at 219p before Covid-19 lockdowns ripped up movie schedules and its cinemas across North America and the UK were locked down.
Cineworld slumped to record closing lows around 21.4p per share back in March and remained turbulent until early November. It sprang higher last month though as news that the Pfizer/BioNTech flu vaccine was being rolled out in the UK. Fresh refinancing to mend its obliterated balance sheet and boost its chances of survival went down a storm too.
The Cineworld share price hasn’t endured any wild swings since then. It was last trading around 65p and long way away from spring’s all time lows. However, it’d be a mistake to think the movie mammoth is out of the woods.
Cineworld’s shares still change hands at a 70% discount to what they traded at on 1 January. This price doesn’t appeal to me at all as it reflects the huge risks the cinema chain still faces.
Why Cineworld could collapse next year
Here are three reasons why I believe the Cineworld share price could tank again in 2021:
#1: Fresh debt worries: Cineworld and its shareholders remain locked in a race against time. That November refinancing package will take the business through to May 2021. Its cinemas will need to reopen by then or this UK share could find itself in big trouble again.
Sure, news on the Covid-19 vaccine is promising. But mass rollout in the US and UK might not come soon enough for Cineworld to fling its doors open again by mid-spring. There’s also the concern that strict lockdowns could remain in place if more vicious flu variants emerge.
#2: More movie releases are pushed back: The re-opening of Cineworld’s theatres might not be the cure to its woes either. It’s likely strict social distancing measures could remain in place for months to come. And half-filled cinemas won’t much help the UK share pay back its enormous debts or stage a miraculous profits recovery.
This could have a significant indirect impact on Cineworld and its peers too. It could cause film studios to delay the release of their hugely popular blockbusters such as Dune, Wonder Woman 1984 and No Time To Die again. Titles like these are the lifeblood of this UK share.
#3: Streaming ahead: The prospect of shuttered or half-empty cinemas means studios could again choose to bypass the likes of Cineworld altogether in 2021. This is what Amazon chose to do with the latest Borat movie, for example, by streaming it on its Prime Video service. Disney has released a number of money-grabbers such as Mulan and Soul straight onto Disney+ too. This threatens to make the streamers even more popular at the expense of the cinema chains.
The dynamic between studios and cinemas has changed dramatically in 2020. Major movie studios such as Warner Bros and Universal have inked deals to release their movies simultaneously in theatres and streaming services, or to reduce the theatrical window the likes of Cineworld enjoy. And this could have significant implications for the cinema industry in 2021 and beyond.
The post 3 reasons why I think the Cineworld share price could crash again in 2021! appeared first on The Motley Fool UK.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Walt Disney and recommends the following options: short January 2021 $135 calls on Walt Disney, long January 2022 $1920 calls on Amazon, long January 2021 $60 calls on Walt Disney, and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021