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Move into Movies by Looking at a Share Which Shouldn't Have Flickered as Much as it Has

By Malcolm Stacey | Wednesday 14 February 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello, Share Springers. I’m guessing most of us are film fans. Though maybe more of us rely on our big screens at home rather than trogging round to the cinema. It’s this change of many a lifestyle that has hitherto put me off investing in cinema chains. But there is one that seems worthy of our attention now.

Cineworld (CINE) shares may have become a bit of bargain after gobbling up an American cinema chain called Regal Entertainment. The deal came with a rights issue which seems to have spooked the City a bit, as the shares are currently at a low ebb. 

It was a $3.6 billion transaction and Cineworld arranged a £1.7 billion rights issue to pay for it. It was fully underwritten, by the way. Yet the shares were above 500p at the beginning of this month and are now around 230p.

I’m not the only one who thinks the shares may now be cheap. Peel Hunt has just labelled Cineworld a ’buy’, after previously having it as a ’hold’. The broker expects strong cash flow. And if a business takes over another business which does the same thing, there are going to useful cuts to be made. Americans are keener on going out to the movies than we Brits, it seems.

Cineworld has a good record of making the most of its acquisitions, but the present share price indicates that the City doesn’t particularly like the latest add-on. That may be a wrong call. And, if it so proves, then we can expect a rising share price and a better dividend.

Films are getting better. It’s always better to see them in a cinema, most of which are quite luxurious these days. And I see no reason to fear that cinema-going will fall off. 

Unlike the Punter’s Return.

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