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This is why I’d ignore the Cineworld share price and buy other cheap UK shares!

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Royston Wild
·3-min read
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An illuminated Cineworld sign
An illuminated Cineworld sign

I’ve been bearish on the Cineworld Group (LSE: CINE) share price since I sold my holdings last October. But news coming out of the embattled cinema chain operator has been brighter since the autumn. And fresh news flow in recent hours has been pretty encouraging too!

First up, Cineworld announced on Tuesday it was planning to reopen its Regal cinemas in the US in April. This is a big deal as the UK leisure share’s US operations, which have been shut for six months, contribute 75% of group revenues. Chief executive Mooky Greidinger commented that “capacity restrictions expanding to 50% or more across most US states” means that the company “will be able to operate profitably in our biggest markets.” Cineworld added that it plans to re-open its UK theatres in May.

More good news!

In other news, the cinema giant announced it had signed “a multi-year agreement” for screening Warner Bros movies. In the US, Cineworld will have exclusivity (with “certain provisions”) to show the studio’s films for a 45-day stretch from 2022. The window will be the same in the UK for movies “that open to an agreed upon box-office threshold,” Cineworld said. Other Warner Bros films will have a 31-day exclusivity period on these shores.

News that Cineworld is preparing to fling its doors open again to the public is clearly great news. Let’s not forget that the cinema chain still has a colossal debt pile to get paid down. It therefore needs the punters to pack out its theatres and fork out on its premium-priced popcorn.

The Warner Bros deal also warrants serious celebration as studios have been signing agreements to allow their movies to be released on streaming services at the same time (or shortly after) cinema rollouts.

Is the Cineworld share price past the worst?

Cineworld looks in much better place than it was when I sold my shares last autumn. But this UK leisure share still carries too much risk to tempt me to jump back in.

Signs of a fresh resurgence in the Covid-19 crisis in the US and across much of Europe could derail the company’s plans to reopen its theatres and keep them open. There’s also no guarantee moviegovers will flock to Cineworld in their droves given the huge variety on offer from streaming giants Amazon, Netflix and Disney.

Cineworld’s share price has more than quadrupled from the record lows it ploughed less than five months ago. At recent prices of 110p per share the cinema chain was up 166% during the past 12 months too. Further gains might be around the corner. But I feel the ongoing Covid-19 emergency, coupled with its enormous debt pile, still pose huge risks to its very existence. The rising might of the streamers also pose serious long-term obstacles for the company to overcome.

All this explains why I’d rather buy other UK shares right now.

The post This is why I’d ignore the Cineworld share price and buy other cheap UK shares! appeared first on The Motley Fool UK.

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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, Netflix, and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon 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