MIDAS SHARE TIPS UPDATE: Hold your nerve in Cineworld’s blockbuster battle
It's January, the weather is getting colder and the stock market has started the year in grim mode. At such times, escapism beckons and there are few more cost-effective ways to avoid the real world than by going to the cinema.
Midas recommended Cineworld last March, when the shares were 452p. Today, they are 22 per cent up at 553½p and are expected to rise further this year and beyond.
But there may be some short-term turbulence. The firm hit the headlines for the wrong reasons last week, saying it would not be showing the latest Quentin Tarantino movie, The Hateful Eight, which opens in the UK this weekend.
Strong force: The latest Star Wars movie should boost Cineworld
The decision, which follows a squabble with the film’s distributors, has irritated Tarantino fans, but most large investors have shrugged it off. They might be more unsettled by a trading update on Tuesday, when Cineworld will reveal how much sales increased in 2015 compared with 2014.
The numbers are likely to show double-digit gains, but they will probably fall short of arch-rival Odeon, which last week revealed a 21 per cent revenue surge in 2015.
Last year was a bumper year for movie-goers, with blockbusters such as Avengers: Age Of Ultron, Spectre and of course, Star Wars: The Force Awakens. Star Wars last week became the top-earning film of all time in North America and has been a huge success here, too.
Odeon tends to do comparatively better with blockbusters than Cineworld and the group is also in the middle of a two-year recovery plan, so its sales were expected to rebound in 2015.
Nonetheless, comparisons between the two chains may not prove terribly flattering to Cineworld and the shares could respond by falling. Shareholders should not panic. Brokers still expect a 30 per cent increase in profits to £95.5million for 2015 and a 13 per cent hike in the dividend to 15.2p. Analysts believe Cineworld will deliver profits of around £104million in 2016 with further gains in the dividend, too.
Midas verdict: The Tarantino episode was unhelpful and Cineworld may find this week a challenge, too. But profits are growing in the UK and the group is expanding steadily in Eastern Europe, so the long-term prognosis is good. A strong hold for existing investors while new ones could take advantage of any share price weakness.
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