A blockbuster year for the cinema industry would suggest that competition from streaming services like Netflix and pressure on consumer spending haven’t negatively impacted the silver screen.

An article in The Guardian suggests that British cinemagoers will have been to the movies 176m times this year, a number not seen since 1971.

Stockbroker Numis says year-to-date the US box office has increased by 10% and the UK box office was broadly flat, showing the resilience of cinema as a leisure activity.

A more diverse range of films and the rise of boutique theatres is credited with keeping cinema buoyant in 2018. For example, the biopic of the band Queen, called Bohemian Rhapsody, has taken more than £43m at the UK box office.

Other popular films this year include the latest instalments in the Avengers, Mamma Mia, Incredibles and Jurassic World franchises, as well as family-friendly hits Peter Rabbit and The Greatest Showman.

Despite this positive backdrop, shares in the two UK-quoted cinema operators haven’t enjoyed much success year-to-date. Cineworld (CINE) has dropped by 0.3% and Everyman Media (EMAN:AIM) has fallen by 2.6%, although both are better than the FTSE All-Share’s 12.7% decline.

Cineworld is currently burdened with a large amount of debt after buying US rival Regal Entertainment. Rising interest rates in the US are a headwind because all of its $4.1bn debt is on floating rates.

The company said at the time of buying Regal that it was confident of being able to rapidly pay down the debt to more comfortable levels.

Numis analyst Richard Stuber notes that Cineworld currently trades on 11.2 times forecast earnings for 2019 versus an average 20-times rating for its global cinema peers. Analysts at HSBC point out Cineworld’s current rating is considerably below its c17-times average over the past decade.

Everyman Media has been caught up in the broad market sell-off where highly-rated stocks have been punished by the market. At the share price peak of 267p in May, the shares were trading on 92 times forecast earnings for 2018. This rating has since reduced to 70-times, albeit still a premium level.

Both companies are rolling out new sites and refurbishing existing ones. HSBC analysts say some cinema operators have achieved more than 20% return on investment when refurbishing sites and report attendance growth above traditional cinemas.

A key reason behind Cineworld’s acquisition of Regal, which gave it a large footprint in the US, is to smarten up the latter’s cinemas with the hope of driving earnings growth even if the industry box office didn’t grow.

‹ Previous2018-12-20Next ›