Share Search
Visit the Share Search
Berenberg cautious of 'too many unknowns' for Cineworld
24th Jun 2021 10:28
(Sharecast News) - Analysts at Berenberg raised their target price on theatre operator Cineworld from 70.0p to 85.0p on Thursday but warned that "too many unknowns" remained for it to make any changes to its 'hold' rating.
Berenberg stated that Cineworld shares were "almost certainly the wrong price", adding that it thinks numerous risks for the equity in the business still exist.
Although, the analysts admitted that with an equity value of just £1.2bn for a company that generated underlying earnings of over $1.0bn prior to the Covid-19 pandemic, if Cineworld can "muddle through", there could also be plenty of upside.
"We struggle to have much conviction about what is likely to happen next, and the limited guidance from Cineworld (particularly on its priorities for cash in the coming years) only makes it more difficult," said Berenberg.
The German bank also noted that it still believes that cinema has "an important role to play in the movie industry", and that it remains of the belief that predictions of its demise are "misplaced".
"However, COVID-19 has provided the black swan event to drive fundamental change in the way movies are distributed. Most notably, it appears that a significantly shorter exclusivity window will become the norm," said the analysts.
"While upwards of 90% of revenues are made in those early weeks, even a marginal reduction in revenues would negatively affect earnings, with a high drop-through margin. Cineworld management has implied that any shortfall will be made up with a better revenue share - but these deals are shrouded in smoke and mirrors, and the proof remains to be seen."
Berenberg stated that Cineworld shares were "almost certainly the wrong price", adding that it thinks numerous risks for the equity in the business still exist.
Although, the analysts admitted that with an equity value of just £1.2bn for a company that generated underlying earnings of over $1.0bn prior to the Covid-19 pandemic, if Cineworld can "muddle through", there could also be plenty of upside.
"We struggle to have much conviction about what is likely to happen next, and the limited guidance from Cineworld (particularly on its priorities for cash in the coming years) only makes it more difficult," said Berenberg.
The German bank also noted that it still believes that cinema has "an important role to play in the movie industry", and that it remains of the belief that predictions of its demise are "misplaced".
"However, COVID-19 has provided the black swan event to drive fundamental change in the way movies are distributed. Most notably, it appears that a significantly shorter exclusivity window will become the norm," said the analysts.
"While upwards of 90% of revenues are made in those early weeks, even a marginal reduction in revenues would negatively affect earnings, with a high drop-through margin. Cineworld management has implied that any shortfall will be made up with a better revenue share - but these deals are shrouded in smoke and mirrors, and the proof remains to be seen."