Cineworld tanks as firm considers share dilution amid dwindling demand
Cineworld tanked nearly 50 per cent this afternoon after the cinema chain warned that it may dilute shares to raise more money.
It comes after the second most shorted stock on the London market warned that demand for the cinema was dwindling.
The firm said that while it had seen a gradual recovery since re-opening in April 2021, recent cinema admissions were now below expectations due to limited film slates, which it predicts will continue until November 2022.
Cineworld said it expects this poor slate to “negatively impact trading and the Group’s liquidity position in the near term.”
Investors were particularly worried by Cineworld’s claims that it was examining deleveraging options, which would likely result in very significant dilution of existing equity interests in Cineworld.
Analysts at Peel Hunt were also uncertain of the move and cut their target price for the stock from a 32p to 20p.
“It is not clear whether Cineworld will be able to raise fresh debt or issue fresh equity but, in either case, it appears that the value of the existing equity will be further diluted,” brokers said.
Commenting on the firm’s tumble, retail and commercial partner at Gowling WLG Sarah Riding told City A.M.: “Cinema owners are having to work harder than ever on customer retention as outside of the major blockbusters that drive temporary ‘pullback’ where footfall is concerned.”
She said that “futureproofing” operations against changing consumer behaviour would be vital, including home streaming and rental services.
Cineworld’s fall sits in contrast to rival luxury cinema chain Everyman, which continues to outshine pre-pandemic levels.
In its latest results, group revenue hit £40.7m, an increase of £11.8m compared to the “record year” 2019.