Cineworld Share Price Forecast January 2022 – Time to Buy CINE?

Shares of British cinema company Cineworld (LSE: CINE) are in the red today after closing at 31.99p as of December 31^st. Cineworld became the FTSE 250’s biggest faller of the year, declining over 50%.

Cineworld – Technical Analysis

Cineworld’s financial statement indicates that the market cap is at £439.221 million with total assets worth £7.528 billion. Revenue for 2020 was at £664.64 million with a profit margin of -311.10% compared to £3.43 billion in 2019.

Moving averages such as Exponential Moving Average (20)(38.39), Simple Moving Average (20)(39.30),  Exponential Moving Average (30)(42.54),  Simple Moving Average (30)(44.17) and Exponential Moving Average (50)( 48.51) are indicating a buy action. On the other hand, oscillators such as Relative Strength Index (14)(30.41), Stochastic %K (14, 3, 3)(19.45), Commodity Channel Index (20)(−57.26), Average Directional Index (14)(41.93) and Awesome Oscillator(−15.06) are neutral.

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Recent Developments

To understand the position Cineworld is currently in, we need to take a step back. Back in 2019, the company has signed a $2.8 billion acquisition deal to purchase Cineplex, a Canadian cinema chain. This deal was supposed to close by mid-2020, making Cineworld the largest cinema company on the planet. But the deal fell through, with management announcing that the deal was off in June 2020. This was followed by subsequent legal proceedings.  Eventually, the Ontario Superior Court of Justice ruled in favour of Cineplex, awarding the firm CA$1.23bn while simultaneously dismissing Cineworld’s counterclaims.  Cineworld’s shares crashed as a result, with the company beginning appeal proceedings.

Cineworld’s management made another major move to acquire Regal Cinemas in the US by taking on huge debt a few years ago. It was entirely possible to pay off the debt if Regal Cinemas continued to generate big revenues. But this did not happen due to the pandemic, which forced even greater debt, making its financial position even more precarious than before.

While the appeal proceedings continue, Cineworld has made its position clear that that it will appeal the decision. If it is successful, it will not have to pay to Cineplex and can increase in value.  Things are finally looking up for the company as evidenced by its latest earnings report that indicated that many delayed blockbuster titles resulted in October UK revenues growing by 27% versus pre-pandemic levels. International performance has also been improving.

However, Cineworld has been taking on considerable debt to stay afloat which is eating away at most of the profits thanks to interest payments on loans. The company will likely once again have to load up on even more debt to pay the Cineplex fine as it just has $437 million of cash on its balance sheet.

Should You Buy CINE Shares?

The judgement regarding the case could jeopardise the company’s survival.  Not only can a business get affected but it has to pay more than £700 million in legal penalties and £3.5 billion in other debts. Although it’s appealing against the judgment, the legal battles will make it harder for the company to find new financing and sustain its current obligations.

While the above is true, it is also worth noting that the company is improving its trading outlook. Cineworld will be able to capitalise on the economic recovery over the next 12 months despite recent restrictions impacting consumer confidence. Considering the company’s current challenges, now is not the time to buy its shares, as the potential risks of owning the shares are now are higher than the potential rewards.

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