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Why I’d ignore the Cineworld share price and buy other UK shares

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Royston Wild
·3-min read
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Cineworld cinema
Cineworld cinema

It’s been a wild few weeks in the life of the Cineworld (LSE: CINE) share price. The world’s second-biggest cinema chain fell back below 100p per share last week before rebounding strongly. But can it keep rising in value as the company gets ready to reopen its doors to the public?

Cineworld’s announcement last week that it swung to a whopping $3bn loss in 2020 underlines the huge stress cinema operators have endured during the Covid-19 crisis. Some pretty big doubts are still circulating that the big chains will ever be able to bounce back too.

Key things to consider

Recent comments from Hargreaves Lansdown analyst Susannah Streeter recently caught my eye. She claimed after those full-year results that “crawling back to profitability after such a big hit will require almost superhero levels of effort.” Streeter also highlighted Cineworld’s comments “that material uncertainty around its ability to continue as a going concern remain.”

Cineworld has taken further steps to solidify its battered balance sheet recently. The company has just received commitments on a new $213m convertible loan due in 2025. It comes on top of the $750m of extra liquidity it sealed back in the autumn.

Will this renewed effort be enough to salvage Cineworld’s financial qualms? Streeter says: “A swift recovery will be crucial given that the company is saddled with high levels of debt.” But she added that there are “fears some people may have got a little too comfortable watching releases from their sofa.”

This is even though it’s possible that the recent releases of blockbusters on streaming services might be reversed to some degree.

Father working from home and taking care of baby
Father working from home and taking care of baby

Fearing for Cineworld’s share price

I share Streeter’s cautious take on Cineworld. But I’m not going to claim the clobbered cinema chain is set for the scrapheap. There’s no telling how strongly demand for its movie tickets will be when its US and UK theatres reopen their doors. It could well be that people flock to the box office en masse after more than a year of tight Covid-19 lockdowns.

I’ve warned about the damaging impact of Netflix, Disney and the other US streaming giants on Cineworld’s future business and consequently on its share price. But let’s not forget that the streamers have been around for years now. And yet the global box office still hit record highs of near-$43bn in 2019, according to Cineworld.

It’s clear a trip to the cinema has retained its timeless appeal in recent years. Will it continue to do so though? Changes to the way studios release their films since the pandemic began — with more consideration being given to those streaming companies — could gut Cineworld’s appeal with its loyal customer base.

The company will have to hit the ground running when its cinemas reopen in the coming weeks, given that huge debt pile. But there’s no guarantee that this will happen. I’d much rather buy less risky UK shares right now.

The post Why I’d ignore the Cineworld share price and buy other UK shares appeared first on The Motley Fool UK.

More reading

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Netflix and Walt Disney. The Motley Fool UK has recommended Hargreaves Lansdown. 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