Key points
- Cineworld was ordered to pay over £700m damages to Cineplex after a botched takeover deal
- Box office revenue is heading higher towards pre-pandemic levels
- A low P/E ratio suggests this company may currently be cheap
With pandemic restrictions being eased around the world, cinemas are benefiting from increased footfall. While a litigation case overhangs the Cineworld (LSE: CINE) share price, box office revenue is increasing. Furthermore, a number of exciting films are due for release in 2022. Results are heading in the right direction, so I think this firm could be a great investment at the current price. Let’s take a closer look.
Litigation
In mid-December 2021, the company was ordered to pay over £700m in damages to Cineplex. The reason for the damages was because Cineworld withdrew from a takeover deal. The cause of the withdrawal was chiefly Cineworld’s weakened financial position in the Covid-19 pandemic.
This news had a catastrophic impact on the Cineworld share price. It collapsed nearly 50% in one day. The company subsequently appealed the judgement of the Ontario Superior Court. It is unclear when the matter will be resolved.
In a more recent update, however, Cineplex appealed against Cineworld’s appeal. It seems that Cineplex is concerned the damage costs will be considered too high. This could mean that Cineworld has to pay a smaller amount than originally thought.
I think the Cineworld share price already factors in all the bad news. Any reduction in damages will not only be positive for the firm, but also for the share price.
Recent trading and the Cineworld share price
In a recent trading update for the six months to 31 December 2021, revenue increased. For the month of December, box office revenue was 88% of the same period in 2019. Furthermore, the UK and Ireland October figure was 127%.
This tells me that more people are going to the cinema. What’s more, current box office revenue is getting close to pre-pandemic levels. With final results due on 17 March, I will be watching very closely. If footfall and revenue continue to increase, I think the Cineworld share price could rocket.
More blockbuster films are scheduled for release too. This year, the likes of Jurassic World: Dominion and Avatar 2 will hit the screens. Nonetheless, I’m still keeping my eye on the company’s not insignificant debt pile of $8.3bn.
The Cineworld share price may also be cheap. A trailing price-to-earnings (P/E) ratio of 6.07 is far lower than Cineplex’s 40.73. This may indicate that Cineworld is a riskier investment. On the flip side, the prospects for growth could be greater.
The business is not without its problems. The debt pile and litigation are slightly concerning. Nonetheless, the pandemic recovery may translate to increased box office revenue in results next month. If this happens, the Cineworld share price could soar. I will be adding to my existing position.
Andrew Woods owns shares in Cineworld. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
