Rising US interest rates to hit Cineworld, says Barclays

24th Oct 2018 09:27

(Sharecast News) - Cineworld was under the cosh on Wednesday as Barclays cut its stance on the stock to 'equalweight' from 'overweight' and trimmed the target price to 305p from 310p as it highlighted rising US interest rates.The bank said Cineworld investors are facing a dilemma."Trading is currently very strong in the US and there may be upside to Regal synergies of $100m. However, US interest rates are rising, all of Cineworld's debt is at floating rates (circa 80% is US based), and leverage is relatively high (FY19 net debt/EBITDA is 3.2x," it said.It noted that Cineworld is a consensual 'buy' among sell-side analysts but said that consensus forecasts don't reflect the risk of rising rates."A clear upside risk is that the company trades more strongly than we expect, but we believe that the investment debate is more balanced now, and stronger trading could be offset by higher interest costs," Barclays said.The bank's economics team assumes that US interest rates will rise to 3-3.25% by the third quarter of next year versus the current Fed Funds rate of 2-2.25%. Despite the downgrade, Barclays said it is "very confident" in the trading outlook for the business and pointed out that Boxofficemojo data reveals that US box office revenues are currently up 11% as at 21 October versus +10% in the first half."Comps toughen in November and especially December, but this still suggests that FY18 results should be strong," it said.At 0920 BST, the shares were down 3.1% to 269.20p.