Where next as Cineworld goes into administration?

Cineworld announced last week that it will go into administration in the UK as part of a restructuring deal that will see its shares suspended from trading and wipe out existing shareholders. However, the wider entertainment industry is in recovery mode, with Cineworld rivals seeing an upturn in share price performance.

• Cineworld share price flops with the cinema chain due to enter administration in the UK.
• Cineworld shares to be suspended from public trading, wiping out existing shareholders.
• AMC, Cinemark and IMAX shares gain as industry recovers.

Cineworld’s [CINE.L] share price has flopped this year with the cinema chain’s UK-listed stock due to be suspended. That’s not surprising considering that the struggling company announced that a proposed restructuring deal with existing lenders would provide no recovery for shareholders.

In June, Cineworld announced that it would exit Chapter 11 bankruptcy proceedings. The restructuring deal will reduce its debt pile by £4.5bn and provide £1.46bn in new financing, while a new rights issue will raise £800m.

In the UK, Cineworld will file for administration as part of the restructuring plan Once appointed, administrators will then move its assets to a newly formed company called Crown controlled by Cineworld’s lenders. The company’s London-listed shares will be suspended as a result. Despite going bust, the company will stay operational and screens will stay open.

While existing shareholders will be wiped out, departing executives at Cineworld will share a windfall payment of £28 million to exit.

How badly has Cineworld’s share price flopped?

Cineworld’s share price opened the first day of trading for 2020 at 219.7p, but by the end of the year it had closed at 64.1p as Covid-19 and subsequent lockdowns decimated business. Additional pressure comes from Cineworld’s acquisition of US chain Regal in 2017, which was partly funded with debt.

Apart from a brief rally at the start of 2021, Cineworld’s share price continued to fall as mounting debt and failed takeover talk weighed on sentiment. On Friday, the stock closed at 0.33p as its suspension as a publicly traded company loomed into sight.

Last December, rival AMC [AMC] abandoned talks with Cineworld’s lenders regarding a potential takeover. In February, Cineworld’s share price spiked on word that Vue was in the frame to takeover the beleaguered cinema chain before talks fizzled out.

What are the alternatives to Cineworld shares?

Cineworld stock might be on the cutting room floor, but the cinema industry as a whole is in recovery. Total US box office sales came in at $7.5bn in 2022, a substantial jump on the previous year’s $4.5bn, according to data from industry website The Numbers.

This summer, Guardians of the Galaxy Vol. 3 has grossed over $800m worldwide. However, there have been some underwhelming performances. Superhero tent pole The Flash stumbled with a $55m opening weekend in the US, missing industry forecasts of $75–$85m.

The performance of upcoming summer releases Indiana Jones and the Dial of Destiny, Barbie, Oppenheimer and Mission: Impossible – Dead Reckoning Part 1 will all be closely watched to see just how much the industry has recovered.

The resurgence in cinema box offices has translated to better share price performance for Cineworld’s rivals. AMC’s share price has gained over 8% since the start of the year, closing Friday at $4.4. The Kansas-based cinema chain’s revenue grew 21.4% in the first quarter to $954.4m. Adjusted diluted loss per share was $0.13 compared to an adjusted diluted loss per share of $0.26 the previous year.

Cinemark’s [CNK] share price has gained over 90% this year, closing Friday at $16.55. The Texas-based chain reported a 33% year-on-year increase in revenue to $611 million. IMAX Corporation [IMAX] is up over 15% this year, closing Friday at $16.99.

However, with the industry still in recovery, investors will have to judge just how much upside is left in these stocks.