The big-risk purchase seems to be paying off for the cinema chain through savings and revenue.
Cineworld benefits more than expected from Regal Entertainment deal
- Positive results see shares rise by 6% in early trading.
- Investors welcome 18% rise in dividends which will be paid on a quarterly basis.
- We continue to recommend the shares as a ‘buy’ for higher-risk investors seeking a balanced portfolio.
Today’s results showed encouraging signs from the purchase of US cinema group Regal Entertainment. Earnings on a proforma basis, assuming Regal had been owned for the whole period, rose 9.4% to $1.7bn with admissions up 2.6% to 308.4m and revenue up 7.2%. In the US revenue rose 8.6% with a 3.3% increase in the UK.
Bigger savings, bigger profits
The scale of the purchase for Cineworld can be seen by the fact that on a statutory basis profits more than doubled to $349m. The potential to make cost savings was always one of the main drivers of the Regal purchase and the company said today savings would be even better than previously expected at $150m this year. Better still for investors was the news that the dividend has been raised by 18% and will be paid in quarterly instalments in the future.
The good news was greeted warmly by the market today and the shares rose 6% in early trading. The size of the Regal purchase last year was a risk for Cineworld’s management but the early signs are certainly positive and there could be much more to come for investors as improvements are made to Regal over time.
Our View on Cineworld - Buy
For that reason, along with the potential for further dividend rises and another year of blockbuster films in the pipeline, we continue with our buy recommendation for investors willing to accept a higher level of risk.
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