Stock of the day 12/08/2015 – Cineworld Group PLC

With Universal breaking the all-time record for an annual gross by a Hollywood studio only 8 months into 2015, you know it’s been a strong year for cinema (in the financial sense, at least).

Cineworld Group is set to be one of the beneficiaries of such robust movie-going when it announces its interim results on Thursday.

With Jurassic World, Furious 7 and Avengers: Age of Ultron all breaking into the top 6 grossing films ever, and Minions lurking in the top 40 at just over $900 million, there has been some big hitters in 2015. And these are only the ones in the all-time top 50; Inside Out has grossed over $600 million, Fifty Shades of Grey and Cinderella both over $500 million and San Andreas and Kingsman have each earned more than $400 million apiece.


(Source: IT-Finance.com 12/08/2015)

The draw of these releases has helped push Cineworld to its own record highs this year, with only one notable wobble in the past 8 months. After starting 2015 at £4.17, the stock saw steady gains throughout the first quarter, leading it to trade at £4.49 on the eve of its preliminary full year results in the middle of March. The company then got a further boost with the results themselves, more than doubling its yearly pre-tax profit to £67.3 million despite claiming 2014 ‘was not the easiest year for film’.

This helped carry the stock to £5.03 by the end of May, before a trading update that contained news of a 26.8% climb in revenue caused the stock to jump to a then-record high of £5.23. June, however, brought with it Cineworld’s aforementioned wobble, with the departure of its finance director Philip Bowcock causing the stock to hit a 3 month low of £4.52. Since then, however, the blockbuster success of Jurassic World and Inside Out helped Cineworld announce an 11.2% increase in revenue for the 26 weeks to the start of July, putting the stock on track for its current £5.46 price (IT-Finance.com, 12/08/2015), an all-time high for the company.

Looking ahead to the rest of 2015, and there are still a few mega-movies on their way to help out Cineworld’s top line. In terms of known franchises, the new James Bond film Spectre arrives at the start of November, before The Hunger Games: Mockingjay – Part 2 lands at the end of the month. The potential pièce de résistance then comes on December 18th, as Star Wars Episode VII: The Force Awakens finally hits theatres. Sprinkled amongst these billion dollar (near) guarantees are other potential solid earners like Ridley Scott’s The Martian, Danny Boyle’s Steve Jobs biopic, the latest team-up between Tom Hanks and Steven Spielberg Bridge of Spies, the second Pixar film of the year The Good Dinosaur, and Quentin Tarantino’s The Hateful Eight.

So, in other words, the outlook is looking good for the rest of Cineworld’s 2015. Add into this the company’s push into Eastern Europe, through the £500 million purchase of Cinema City, and analysts are excited about Cineworld. Peel Hunt is expecting, after everything is taken into account, half year earnings of £60 million, whilst Citigroup just started its coverage of the stock with a ‘Buy’ rating and a £7.20 price target. Barclays, meanwhile, claims that cinema admissions will be up 3% for 2015 in total.

Cineworld Group has a consensus rating of ‘Buy’ with an average target price of £5.28.