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Berenberg reiterates 'buy' rating on Cineworld
5th Sep 2019 12:07
(Sharecast News) - Analysts at Berenberg stood by their 'buy' rating on British theatre operator Cineworld on Thursday after taking its time to delve through the group's first-half results.
While Berenberg thinks some concerns surrounding the group are warranted, the analysts believe that the majority should be addressed in the second half.
The German bank acknowledged that one of the main areas of worry regarding Cineworld was that its US business had underperformed at the box office by roughly nine or 10 percentage points.
However, Berenberg said it was "confident" that the US unit's performance should improve in the second half "for a number of reasons", such as evidence of "solid traction" in Cineworld's recently launched Regal Unlimited programme, site closures beginning to annualise and "a growing tailwind from 2020 onwards" as a result of refurbishments.
"All considered, the impressive margin performance in H1 more than offset the weaker top line, and combined with an improved release slate in H2, we remain comfortable that Cineworld will achieve consensus estimates," said the analysts.
It also believed the group's cash conversion was set to improve in the tail end of 2019 thanks to "big reversals" in working capital, capital expenditures and interest costs.
"With the shares trading on a double-digit free-cash-flow yield, risk looks skewed to the upside," concluded Berenberg, which also reiterated its 360p target price for Cineworld.
Cineworld's free cash flow was pegged at £400.0m in 2019 for a FCF yield of 11%, with a medium-term upside to consensus FCF estimates from greater capex efficiency in its regal refurbishment programme.
While Berenberg thinks some concerns surrounding the group are warranted, the analysts believe that the majority should be addressed in the second half.
The German bank acknowledged that one of the main areas of worry regarding Cineworld was that its US business had underperformed at the box office by roughly nine or 10 percentage points.
However, Berenberg said it was "confident" that the US unit's performance should improve in the second half "for a number of reasons", such as evidence of "solid traction" in Cineworld's recently launched Regal Unlimited programme, site closures beginning to annualise and "a growing tailwind from 2020 onwards" as a result of refurbishments.
"All considered, the impressive margin performance in H1 more than offset the weaker top line, and combined with an improved release slate in H2, we remain comfortable that Cineworld will achieve consensus estimates," said the analysts.
It also believed the group's cash conversion was set to improve in the tail end of 2019 thanks to "big reversals" in working capital, capital expenditures and interest costs.
"With the shares trading on a double-digit free-cash-flow yield, risk looks skewed to the upside," concluded Berenberg, which also reiterated its 360p target price for Cineworld.
Cineworld's free cash flow was pegged at £400.0m in 2019 for a FCF yield of 11%, with a medium-term upside to consensus FCF estimates from greater capex efficiency in its regal refurbishment programme.