8th Mar 2018 13:19
Cineworld - which owns the Picturehouse cinema chain as well as the eponymous Cineworld brand - made a
The deal - which closed on February 28 - made Cineworld the second-largest cinema operator in the world with 793 sites, 9,542 screens and a "strong market-leading" position in ten countries. These include
"In our view, these offer better growth prospects in terms of theatre admissions, increasing ticket prices, and average concessions spending per patron than mature markets, which will support Cineworld's operating performance and profitability, S&P analyst Alexandra Balod explained. "Being in markets such as
The credit analyst did highlight Cineworld operated in a "volatile and highly competitive" industry. Performance relies heavily on box office performance which is "subject to seasonal volatility and the success of films, which is hard to predict".
S&P also emphasised cinemas faced tough alternative out-of-home entertainment competition including sport and theme parks. What is more, in the home over-the-top-services were growing in popularity.
In the US and
After the transaction, three quarters of revenue will come from the US. In 2018, S&P expected the enlarged Cineworld to generate adjusted earnings before interest, tax, depreciation and amortisation of
"The group's large size and scale will help it mitigate the risks inherent in the industry", S&P said. "We believe Cineworld will have more power to negotiate lower film rental costs with major film studios and will have better purchasing terms for concessions compared with smaller peers. This will help the group maintain control over costs although the nature of the business gives it limited leeway because the overall cost structure is rigid."
S&P's stable outlook reflects it expectations that Cineworld will deleverage. The credit broker expects adjusted debt to Ebitda ratio to stand at 5.0 times in 2018. Between 2019 and 2020 S&P expects this to fall to between 4.0 and 4.5 times.
Cineworld announced it intends to deleverage to around 3.0 times Ebtida by the end of 2019.
The rating could get a boost should Cineworld achieve and maintain Ebitda margins at around 20% to 23% and reduces its leverage below 4.0 times. S&P maintained it saw this as "remote" at this point.
Ratings could fall should adjusted leverage not fall comfortably below 5.0 times in 2019 and beyond.
"This could happen if it sees weaker operating performance - for example, stemming from materially lower admissions and box office revenues globally - or if it experiences delays in achieving synergies or higher-than-expected restructuring and other integration-related costs," S&P explained. "A more aggressive financial policy, with higher shareholder payouts that would reduce discretionary cash flow, could also lead to a downgrade."
S&P's move follows a similar one by credit analyst peer Moody's Investors Service in January. Moody's assigned Cineworld a B1 credit rating with a Stable outlook.
Shares in Cineworld were 4.6% higher at
Related Shares:
CINE.L