Cineworld confident for Regal challenge in blockbuster-heavy year

Boosted by a strong 'Star Wars'-led finish to the year, the FTSE 250 company, which with more than 9,500 screens in almost 800 locations in 10 countries is now the second largest cinema chain in the world, took £890.7m of revenues in the calendar year, up 11.6% or 8% if currency swings are excluded.

Adjusted earnings before interest, tax, depreciation and amortisation of £198.2m was up 7.4%, in line with average analyst forecasts. Profit before tax of £120.5m was up 22.7% or 14.5% to £127.5m on an underlying basis.

Basic earnings per share, adjusted for the rights issue associated with the $3.4bn Regal acquisition, of 16.4p were up 19.7% on the prior year. With cash generation of £184.8m, the full year cash dividend was increased 14.5% to 15.4p per share or 3.1p on a rights adjusted basis.

To pay for Regal, Cineworld raised £1.7bn from the rights issue and has secured dollar- and euro-denomiated term loans of $4.1bn and a $300.0m revolving credit facility. Net debt is now around 4.4 times EBITDA.

With the strong finish to last year continuing in January and February with the huge success of Marvel's 'Black Panther' and the completion of the Regal deal at the end of February, chief executive Mooky Greidinger was "pleased" with the opening weeks of the new year and "encouraged" by the 2018 slate, which also includes 'Jurassic World: Fallen Kingdom', 'Fantastic Beasts: The Crimes of Grindelwald', 'Avengers: Infinity War', 'The Incredibles 2', 'Mamma Mia! Here We Go Again', Star Wars spin-off 'Solo', 'Deadpool 2', 'Fifty Shades Freed' and 'Mary Poppins Returns'.

For the UK and rest of the world, the group plans to open 381 screens in the next four years, of which 75 are scheduled for delivery in 2018.

"The cash generative nature of our business underpins our business model. Our priorities for the use of our cash have remained consistent; to invest in the business to support growth in revenue and earnings, for selective acquisition opportunities and to grow the dividend," Greidinger said.

On the Regal deal, he added: "Although a huge challenge, we as management are confident that we will successfully lead the group to new achievements and deliver enhanced shareholder value. Through our success and experience in the UK and Israel we have learnt and proved that the potential in more mature markets is at least as attractive as in the emerging markets.

"The US is the biggest cinema market in the world and we are confident that this transformative acquisition will be a great success."

Although no further details have been disclosed in this release, analyst are expected to hear more later in the day.

Shares in Cineworld rose more than 3% in the first hour and a half of trading on Thursday to 248.2p.

Numis said the 2017 results are as expected but the Regal deal is "more crucial to sentiment" and "still largely misunderstood by investors". It forecast 5.5% EBITDA compound annual growth between 2018-2021, driven by US margin improvement from cost and revenue synergies and whilst the balance sheet looks "optically high" at a starting ND/EBITDA ratio of 4.4x, "we believe the balance sheet is appropriately leveraged".

Numis forecasts £2.9bn revenue, £630.9m EBITDA, £313.1m PBT, 18.5p EPS and a 10.2p dividend per share for 2018, with PBT of £408m and EPS of 24.2p in 2019.

Analysts at Canaccord Genuity said excluding Regal "these are creditable results in a soft film year and we would have expected a good response to the dividend hike".

"However, the results add little/no further insights to the Regal acquisition. We think it's a deal fraught with risk but the share price fall makes the upside attractive enough to support our recent upgrade to 'buy'."