Cineworld’s Shares Have Dropped 88%. Some Short Sellers Say They’ve Got Further to Fall
(Bloomberg) - Cineworld Group Plc's shares are down 88% since the start of the year. A phalanx of short sellers still believe they are overvalued.
Shares in the London-based cinema chain fell 36% on Monday after the company announced it would cease operations in US and UK theaters. The decline translates into a paper profit of £ 38.2 million ($ 49.4 million) for short sellers. This is evident from Bloomberg calculations based on data from IHS Markit Ltd. based.
Investors who borrow stocks to sell them first and then buy them back at a lower price seek even greater profits. You're betting against 29% of the company's freely traded shares as of Tuesday, its highest level this year, according to IHS Markit.
"The outlook for the industry remains of fundamental importance," Natasha Brilliant, an analyst at Citigroup Inc., quoted discussions with short sellers. The company had "structural problems, debt problems and governance problems, as well as some short-term challenges with a weak film slate, so it even got into Covid as a fairly unpopular stock".
A representative from Cineworld declined to comment.
Some analysts are more positive: four of the brokers recorded by Bloomberg rate the stock as a “buy” and four advise investors to hold the stocks. Two recommend the sale. The 12-month average price target suggests the ailing stock could gain 145%, according to Bloomberg data.
Cineworld isn't the only cinema operator short sellers target. The brief interest in AMC Entertainment Holdings Inc., a U.S. peer, was 40% of the free float, while the bets against Cinemark Holdings Inc. were 26% of the free float, according to IHS Markit data on Tuesday.
Cineworld had started reopening its cinemas after lockdowns designed to contain the spread of the Covid-19 pandemic eased, but it was plagued by film delays. The postponement of the latest James Bond film was a "heavy blow," said CEO Mooky Greidinger in an email to employees.
Read more: Cineworld closes cinemas due to film delays, risking 45,000 jobs
Other concerns investors might have about the movie theater chain include the threat of the exclusivity window cinemas have before movies are available through streaming services like Amazon.com Inc.'s Prime and Netflix Inc., the company's heavy debt burden, and a lawsuit from rival Cineplex Inc. after a failed merger, Brilliant said.
"It's an alignment of things that short sellers are very fond of," she said.
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