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Profit Watch UK

Profit Watch UK

A quarterly report analysing the revenues and profitability of the top 350 UK companies.

Share tip of the week

Each week, our analysts put the spotlight on a company from our list of recommended shares to buy. As always, it's recommended as a medium/long term investment (approximately 18 to 36 months). This week's share tip of the week is...

Cineworld (CINE)

  Company Sector Current price
(pence)
Change
today
  
Investment
objective

Risk
Our
view
  Cineworld (CINE) Travel & Leisure  711.50 c  -0.35%    Balanced Medium  Buy
 Analysis last updated on 11/08/17 at 720p Recommended stop loss of 15%

View charts, and further company data

Company overview

Cineworld was founded in 1995 and floated in May 2007. It one of the leading cinema groups in Europe with 2,103 screens across 224 sites in the UK, Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.

Our view

Under/over valued?

A steady stream of blockbuster films has helped drive growth at cinema operator Cineworld. The group has expanded its operations across the UK in recent year and boosted its growth further with acquisitions in Central and Eastern Europe where it sees good potential. As well as all that the company has increased the amount of retail sales at its sites by introducing outlets including Starbucks.

Interim results in August pleased the market as they showed continued good sales and profit growth, both in the UK and abroad. Revenues rose 18% to £420.2m with pre-tax profit up 22.4% to £50.2m. The interim dividend was lifted 15% and the company said it had made a good start to the second half with a number of blockbuster films still to come in the run-up to Christmas.

The shares trade on a 2018 price/earnings ratio of 17.4, which is lower than most peers, and a prospective dividend yield of 3.2%. The strong level of cash generation and relatively strong balance sheet provides more certainty over dividend payments.

We are recommending the shares as a Buy for medium risk investors due to the potential growth in Europe, strong cash generation supporting dividends and the steady stream of blockbuster films in the pipeline.

Bullish points

• A good track record of growth through both acquisitions and by organic means. Strong cash flow is helping to lower debt, increase dividends and fund further expansion.


• Good pipeline of new blockbuster films and a focus on more family-orientated films helps to improve retail sales.


• Potential long term growth in Central and Eastern Europe, where Cineworld generates 40% of its sales, as growing middle class sees disposable incomes rise. Good potential to increase ticket prices which would boost profit margins.


• Fragmented nature of European cinema market means there is plenty of scope for acquisitions and the benefits of scale that brings.

Bearish points

• If rising inflation in the UK leads to an increase in interest rates then disposable incomes could be squeezed and sales could decline.


• Exposure to currency fluctuation is high due to a significant proportion of sales coming from outside the UK.


• A slowdown in the number of high profile film releases could hit box office takings.



Comment updated on 11 August 2017

Author: Ian Forrest, Investment Research Analyst

The facts

Below are the trailing 12 month results to the end of the final period versus the previous 12 month trailing period. As we are reporting rolling returns below, the data will be different to that which you see on other parts of our web site. Results are as follows

Current

Basic Earnings per Share 30.8pence

Dividend per Share 19.0pence

Dividend Yield 3.0%

Revenue £798million

Operating Profit/(Loss) £113million

Debt to Equity 42.4%

Cash on the Balance Sheet £56million

Dividend Cover 1.6times



Previous

Basic Earnings per Share 30.7pence

Dividend per Share 17.5pence

Revenue £706million

Operating Profit/(Loss) £153million

Debt to Equity 46%

Cash on the Balance Sheet £million

Dividend Cover 1.8times



Change

Basic Earnings per Share 0.1 %

Dividend per Share 8.6%

Revenue 13%

Operating Profit/(Loss) -26%

Debt to Equity % -7

Cash on the Balance Sheet %

Dividend Cover %



Forecast Estimates 2018

Earnings per share 41.2 pence

P/E 17.4

Dividend yield 3.2%



Month(s) company is expected to go ex-dividend

June

September

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Prices may fluctuate and appear inconsistent with the day's trading on or around the opening and closing of the stock market. This is due to the pre and post market auctions for certain LSE stocks, this is usually between 07:30 and 08:15 and from 16:30 until 17:00. The day's closing prices are indicated with a "c" against the price.