Cineworld (CINE) has 10% of disclosed short positions (this has been slowly increasing over the last 6 months).
CINE in brief.
Y/E 2018 - T/O $4.1bn, Operating Profit $493m, Net Profit $273m, Operating Margin 12%.
Debt $7bn - Yes $7bn - with its $3.6bn acquisition of US-based Regal Entertainment, CINE is now the second-largest cinema chain in the world – currently with 9,494 screens across 786 sites – but also this has created a highly indebted business. Factoring in Regal’s debt, the deal cost Cineworld $5.8bn in total. This was funded by a $2.3bn rights issue at 157p, along with $4.1bn of debt raised. With many of this types of takeovers you always get some degree of cannibalisation of existing sites and self purchase of your own market share. So I am expecting some short to medium term share price adjustment as the business adapts to its new size.
The good news is that it is expected that the purchase of Regal will now add $150m to the bottom line, as opposed to $100m as originally though, though I do feel this has been bought at a high price of $5.8bn.
Why short? -
- The level of debt is large this has caused a drop in interest cover from 16.5 times (2017) to 2.9 times (2018) - this will make the business more open to operating margin pressure.
- Sale and lease back of sites - This type of transaction I always view as a sign of cash-flow desperation, as the fix is often short-term but can adversely affect long term profitability. - Just my personal opinion. - Will be interesting if CINE is badly effected by the proposed changes to IFRS 16, where leases are now classed as debt under certain circumstances.
- CINE has roughly 75% of the US cinema $ market, 15% in the UK and 10% rest of the world. Last time i was in the US, I got the feeling that this industry was frighteningly competitive and highly dependent on the Hollywood blockbusters being rolled out to keep customers attending.
- Moviepass wasn't a success, yet CINE is pushing a subscription offering, which must impact margins as there must be a cost to this.
My main concerns are:
- the high debt and
- the competitive industry and
- the changing landscape of the film industry ( I think last year more was spent on films by Netflix (though not sustainable) than Hollywood, though when you look at Apple TV and Amazon proposed film spend - this isn't going to let up!
Open Price - 215-220p which is the support level
Stop Losss 230p
Limit 150p - ish
Though with this trade once it is moving in the expected direction I will probably put a trailing stop loss on at around 200p trailing by 18 with a step of 1.
I normally leave them at this once I know they are moving then bail out at 60-90 day mark, as returns often hit a diminishing return at this point.
CINE in brief.
Y/E 2018 - T/O $4.1bn, Operating Profit $493m, Net Profit $273m, Operating Margin 12%.
Debt $7bn - Yes $7bn - with its $3.6bn acquisition of US-based Regal Entertainment, CINE is now the second-largest cinema chain in the world – currently with 9,494 screens across 786 sites – but also this has created a highly indebted business. Factoring in Regal’s debt, the deal cost Cineworld $5.8bn in total. This was funded by a $2.3bn rights issue at 157p, along with $4.1bn of debt raised. With many of this types of takeovers you always get some degree of cannibalisation of existing sites and self purchase of your own market share. So I am expecting some short to medium term share price adjustment as the business adapts to its new size.
The good news is that it is expected that the purchase of Regal will now add $150m to the bottom line, as opposed to $100m as originally though, though I do feel this has been bought at a high price of $5.8bn.
Why short? -
- The level of debt is large this has caused a drop in interest cover from 16.5 times (2017) to 2.9 times (2018) - this will make the business more open to operating margin pressure.
- Sale and lease back of sites - This type of transaction I always view as a sign of cash-flow desperation, as the fix is often short-term but can adversely affect long term profitability. - Just my personal opinion. - Will be interesting if CINE is badly effected by the proposed changes to IFRS 16, where leases are now classed as debt under certain circumstances.
- CINE has roughly 75% of the US cinema $ market, 15% in the UK and 10% rest of the world. Last time i was in the US, I got the feeling that this industry was frighteningly competitive and highly dependent on the Hollywood blockbusters being rolled out to keep customers attending.
- Moviepass wasn't a success, yet CINE is pushing a subscription offering, which must impact margins as there must be a cost to this.
My main concerns are:
- the high debt and
- the competitive industry and
- the changing landscape of the film industry ( I think last year more was spent on films by Netflix (though not sustainable) than Hollywood, though when you look at Apple TV and Amazon proposed film spend - this isn't going to let up!
Open Price - 215-220p which is the support level
Stop Losss 230p
Limit 150p - ish
Though with this trade once it is moving in the expected direction I will probably put a trailing stop loss on at around 200p trailing by 18 with a step of 1.
I normally leave them at this once I know they are moving then bail out at 60-90 day mark, as returns often hit a diminishing return at this point.