Cineworld at the mercy of film slate and Endeavour goes public in quest to merge with Centamin

Tuesday, December 3, 2019 - 11:17

“UK investors look like they’ve stayed in bed after last night’s widespread market sell-off, triggered by Donald Trump having another rant on Twitter about his dislike of the Fed’s interest rate policy and reintroducing tariffs on steel from Brazil and Argentina.

“The FTSE 100 edged 0.1% lower on Tuesday morning with gains in housebuilders and utility companies offset by weakness in miners and oil producers.

“European markets were more upbeat with small gains across the major markets, although Asia was flashing red like the UK,” says Russ Mould, Investment Director at AJ Bell.

Cineworld

“Expectations were already low for Cineworld’s earnings and so today’s mild profit warning doesn’t come as a major surprise.

“A lot of people have been betting on the share price falling, known as short selling, partially because of concerns around the company’s very large debt. A weak film slate will have also been behind the negative view as well.

“Big hits like Frozen 2 and The Joker aren’t enough to guarantee blockbuster sales for Cineworld. It needs a constant flow of popular films throughout the year and sadly 2019 hasn’t been a vintage period for the silver screen.

“The cinema industry has historically been very resilient through good and bad economic times, and has shrugged off competitive threats from Betamax, VHS, DVD and now streaming. But ultimately its fortunes are still dependent on the popularity of films released at the box office.

“All cinema operators can do is make sure their sites look smart, ticket prices offer good value for money, customers buy food and drink, and everyone comes away feeling as if they’ve had a good time.

“A rise in Cineworld’s share price on today’s news is probably down to short sellers closing out their positions now we’ve had confirmation of weaker trading.”

Centamin

“When you’re trying to buy a business and they don’t want to talk, a classic manoeuvre is to go public and tell the world about your plans. That’s exactly what Endeavour Mining has done in its quest to get Centamin to enter into merger talks.

“By going public, Endeavour will hope that Centamin’s shareholders support its plans and put pressure on the target’s management to start holding proper discussions with the suitor.

“Centamin is an obvious takeover target as its share price has been through a few weak patches in recent years due to operational issues. Its Sukari project in Egypt is one of the biggest gold deposits among any listed miner and is considered to be a prized asset.

“Centamin has been looking at opportunities beyond Egypt for numerous years but there has been no progress towards actually developing a second mine. Getting hitched to Endeavour would create a much bigger company with numerous projects and geographical diversity – something which investors would no doubt be hungry to back.

“The key sticking point is likely to be price. Centamin probably has the view that its recent sluggish share price isn’t indicative of the true value of the company when taking a long-term view. Endeavour may have to rummage deeper in its pockets to see if it can find a few more nuggets to sweeten the terms of the proposed deal.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.