Cineworld shares set to struggle after major H1 loss

• Cineworld shares under pressure after suffering half-year loss amid Covid-19
• Rising coronavirus could see national lockdowns reinstated
• Cineworld may raise additional funds to increase liquidity amid challenging environment

Cineworld shares have found support at 41p per share, but the stock could struggle over the winter months, with rising coronavirus cases leading to tighter government restrictions and the possibility of national lockdowns, which would be a disaster for the theatre group.

Earlier this month, the company revealed the financial impact of Covid-19 on its business, with the group swinging to a loss in its first six month of trading (January-June 2020). In fact, the cinema chain reported a $1.64 billion loss, down from a profit of $139.7 million during the same period a year ago.

Revenues at the company slipped 67% after admissions fell 65% to $47.5 million due to the group being forced to close all of its sites between mid-March to late August due to government restrictions aimed at curbing the spread of the virus.

‘The impact of Covid-19 on our business and the wider leisure industry has been substantial, with the closures of all of our cinemas worldwide for an extended period,’ Cineworld CEO Mooky Greidinger said.

‘During this unprecedented time, our priority has been the safety and health of our customers and employees, while at the same time preserving cash and protecting our balance sheet.’

Cineworld is trading at 43p per share at the time of publication, with the stock down 80% year-to-date.

Cineworld may raise additional funds if tighter Covid-19 restrictions return

The pandemic has already taken a major toll on Cineworld’s financial performance this year, with the company raising $360.8 million worth of additional liquidity to support its business.

The company also reduced costs, made use of government support schemes, delayed investments and suspended its dividend to the disappointment of its shareholders.

But if tighter restrictions return to curb the spread of the virus once again, Cineworld admitted that it would likely have to raise additional capital to improve its liquidity.

‘However, we are well prepared operationally for all possible eventualities and continue to monitor for any potential changes to government restrictions or guidelines,’ Cineworld said in a statement.

‘In the US, our largest market, California remains partially closed and New York is yet to re-open. We hope to see these states re-open in the near future, as they are important to the group and to the theatrical industry as whole.’

Uncertain future for Cineworld

Cineworld must have a stronger performance in the second half of 2020 to ease pressure on its finances and strengthen its balance sheet.

However, the company has said it has sufficient resources to survive until the end of this year even if its theatres had to stay closed after it secured extra headroom from its lenders in May.

But regardless, a weak H2 could lead Cineworld to take more drastic action such as downsizing its estate or cutting jobs, which would likely weigh heavily on its share price.

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