RBC sees buying opportunity as box office hots up for Cineworld
By Abigail Townsend
Date: Monday 08 Jul 2019
(Sharecast News) - RBC Capital Markets has flagged Cineworld as a "fantastic" buying opportunity despite pencilling in a slide in first-half earnings for the cinema chain.
The bank is estimating proforma first-half earnings before interest, taxes, depreciation and amortisation to fall to $470m pre-IFS 16 from $553m, after a weaker-than-expected start to the year.
It noted: "At the five-month stage, the group saw a 5% underperformance due to the closure of 17 sites and from having no subscription model. This will continue for the first half. On that basis we assume a 11% reduction in attendance year-on-year at a marginal profit per attendee of $8."
However, analysts Julian Easthope and Christine Zhou argued that Cineworld was set to benefit from a far stronger release schedule in the second half.
"The group will benefit from Spiderman and Lion King in July, with BoxOffice.com estimating $405m and $605m respectively compared with Mission Impossible ($220m) and Ant-Man and the Wasp ($217m) in 2018. Christmas is also looking strong with Star W and Jumanji against the disappointing Aquaman ($335m) and Mary Poppins ($171m)."
They continued: "The falling share price, caused by the film release schedule that is driving short-term earnings weakness, suggests the stock would be better vehicle for investors with a longer-term time horizon.
"We believe the weak film slate in the first half offers a fantastic buying opportunity for investors and PE alike and retain our 'top pick' rating and 400p price target."
As at 1015 BST shares in Cineworld were up 2% at 261p.
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