In the past, if you wanted to invest in cinema operator Cineworld, you could buy Cineworld shares. However, today, the shares are no longer trading on the London Stock Exchange. So, what happened to Cineworld shares? And what can investors learn from the disappearance of the stock?
Cineworld ran into financial challenges
To understand what happened to the Cineworld share price, we need to take a step back and look at what happened to the company during the coronavirus pandemic. It’s fair to say that the pandemic hit the cinema operator hard.
Earlier on in the pandemic, cinemas were forced to close after governments put lockdowns in place to prevent the spread of the coronavirus. This led to a sharp drop in revenues for Cineworld (it was forced to close its entire estate of 787 cinemas in 10 countries).
The big problem was that Cineworld had a massive pile of debt on its balance sheet. Going into the pandemic, it had net debt of around $3.5 billion on its books due to its takeover of US rival Regal Cinemas in 2018. And with revenues drying up, it became harder to service this debt.
Now, Cineworld was hoping that when lockdowns were lifted, people would rush to the movies and its revenues would rebound. But this didn’t happen. When restrictions were relaxed, consumers were reluctant to go to the movies due to safety concerns (streaming services like Netflix and Amazon Prime provided a decent alternative). Meanwhile, film studios were reluctant to release their new films (e.g. No Time to Die), adding further complications.
Given the challenges it was facing, Cineworld advised in mid-2022 that it has been taking steps to obtain additional liquidity and restructure its balance sheet to deleverage itself. And a few months later, it filed for Chapter 11 bankruptcy in the US to restructure its huge debt pile (filing for a Chapter 11 bankruptcy means a company intends to reorganise its finances, while remaining in business).
In April 2023, Cineworld announced that it had reached a restructuring deal with lenders. However, it noted at the time that its restructuring plan did not provide for any recovery for shareholders. And a few months later, the company announced that Cineworld shares would be delisted from the London Stock Exchange in July 2023 following the appointment of administrators.
So, Cineworld shares were delisted, despite the fact that the company’s cinemas are still in operation today.
You can see in the below chart that Cineworld shares peaked above 300p in late 2019 before crashing in 2020.
A lesson from Cineworld’s downfall
If there’s one takeaway from the downfall of the Cineworld share price, it’s that investors should always take a close look at companies’ debt levels.
At first glance, Cineworld looked like an attractive stock to own. Everyone loves going to the movies, and the company had a decent growth track record.
However, a closer examination would have revealed that, as a result of acquisitions, its balance sheet was very stretched.
It was its balance sheet that ultimately led to Cineworld’s downfall.
When revenues fell, the group was unable to handle the interest payments on its debt. And this sent the company into a downward spiral, resulting in massive losses for shareholders.