Cineworld (CINE Stock) slides to an X-rated $2.6bn loss

It’s been a roller coaster week for the Cineworld share price, rising initially on its announcement earlier this week that it was looking to reopen some of its US cinema real estate next month with showings of Mortal Kombat and Godzilla vs Kong, and the signing of a deal with Warner Brothers starting in 2022 which gives the chain limited exclusivity for 45 days in the US and 31 days in the UK.

These gains proved to be somewhat short-lived as the shares slid back as concerns about delays to an economic reopening pulled down the entire sector. Despite the losses seen so far this week the shares still managed to hit a one year high at the end of last week, on optimism over their cinemas in the US and UK being able to open, albeit on a limited basis starting next month.

While this optimism is probably well founded it can’t disguise the perilous state of Cineworld’s finances which remain perilous, and are unlikely to improve significantly even if they are allowed to reopen all of their real estate, due to capacity restrictions.

The company has bought itself some time with various plans to restructure its finances as well as raising extra funds in November when management managed to get the extra liquidity it needed to secure a stay of execution, agreeing lending waivers until June 2022, and securing a new debt facility of $450m, which matures on 23 May 2024. This morning the company announced a new facility of a new $213m convertible bond due in 2025, with quite a hefty coupon of 7.25%.

None of this changes the fact that the company is leaking cash at a rate of knots and any reopening will be with fairly tight constraints on capacity in the short term at least, with little prospect of an easing this year at least.

Today’s full year numbers were expected to show that annual revenues declined to about $1bn, and despite these low expectations they still managed to come in lower than that, declining to $852.3m. This compares with revenues of $4.37bn a year ago.

The total loss after tax for the year came in at just over $2.65bn, a large part of which was driven by impairments of $1.34bn.

Even with a lifting of restrictions the outlook continues to remain challenging, and any setbacks to the opening timetable will put even more pressure on the company’s finances.

Cineworld has acknowledged that by saying that any further delays could well mean the company has to go back to its lenders cap in hand for further support.

While this is good to know, none of this addresses the elephant in the room which is the company’s debt pile which currently sits at an eye watering $8bn, give or take, and where revenues for next year are still expected to be half the level they were in 2020.

Expectations for 2021 revenues are in the region of $2.5bn, with a return above $4bn expected in 2022, all the while assuming no further setbacks.

Cineworld, along with its sector peer AMC Entertainments, who own the Odeon brand are likely to find the next two years extremely challenging at a time when streaming has taken off.