MIDAS UPDATE: Bumper year projected for Cineworld as fans line up for a battalion of blockbusters

By Joanne Hart for The Mail on Sunday

Updated:

A string of blockbuster films is expected to hit the silver screen this year and next, including the latest incarnations of Toy Story, Fantastic Four, Star Wars (starring the late Carrie Fisher), Avatar and perhaps even another Bond movie.

Each of these movies is expected to generate at least £50million at the UK box office alone and far greater sums worldwide – good news for Cineworld Group, the only quoted cinema company in Britain and the second-largest cinema business in Europe.

Midas recommended the shares in March 2015, when they were 452p and we took another look this time last year, by which time the stock had risen to 544p. Today the price is 586½p and is expected to increase to at least 630p over the next 12 months.

All guns blazing: Star Wars spin-off Rogue One, released last month starring Felicity Jones, has been a big hit for Cineworld

All guns blazing: Star Wars spin-off Rogue One, released last month starring Felicity Jones, has been a big hit for Cineworld

With more than 220 cinemas and 2,000 screens, Cineworld operates across Eastern Europe, as well as in the UK and Ireland. The group owns the Cinema City and Picture House chains and recently bought five Empire cinemas, including London’s Empire Leicester Square which is used for UK premieres.

Last year was relatively tough for cinema groups. Few blockbusters were released and companies were under pressure to improve, following an extremely strong year in 2015.

However, analysts believe Cineworld rose to the challenge and a year-end trading update on Wednesday is expected to show that the group delivered a good increase in sales, despite external conditions.

Stockbroker N+1 Singer suggests 2016 pre-tax profits will increase by almost 9 per cent to £108million, while this year’s profits are forecast at £127million, a gain of more than 17 per cent. Cineworld is a decent dividend payer too, with a dividend rise of 7 per cent to 18.8p pencilled in for the year just ended, rising to 20.6p for 2017.

Like many cinema companies, Cineworld should benefit from the strong roster of movies this year and next. 

But the group has other strings to its bow, in particular its growing presence in Eastern Europe. There are fewer cinemas there than here, but films are hugely popular so there is real potential for Cineworld to expand its business and increase sales.

Research indicates, too, that people tend to keep going to the cinema when times are hard, so if the UK economy does suffer this year as Brexit negotiations begin, Cineworld should prove resilient.

Midas verdict: Cineworld is a well-managed business in an industry that offers reasonably priced entertainment to millions of people. 

Shareholders who bought in 2015 have seen a significant uplift in the value of their stock, but the company is likely to deliver further gains this year, so there is little reason to sell. New investors could also secure long-term gains if they buy some shares at the 586½p current price.

 

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