Cineworld Group PLC (LON:CINE) has been downgraded to ‘neutral’ from ‘overweight’ by analysts at JP Morgan, who said they “cannot recommend investors buy the stock” as the group’s cinemas remained shuttered during the coronavirus pandemic.
In a note on Monday, the bank also slashed its target price for the FTSE 250 group to 90p from 300p, saying the outbreak had “heaped further pressure on a share price already impacted by concerns around financial leverage and structural threats from streaming”.
READ: Cineworld shares a horror show as it warns coronavirus could put it out of business
Analysts also said that they “cannot envisage a realistic scenario” in which the company will complete its US$2.1bn acquisition of Canadian multiplex chain Cineplex in the first half of 2020.
JP Morgan added that they believed the firm had “sufficient liquidity to survive” a closure of its entire estate for the first half of its 2020 financial year, but only if its “cancels both dividends and growth capex and adopts various mitigation strategies to reduce costs, including significant curtailment of lease payments and wages”.
“The real question is one of liquidity and we think that Cineworld would have sufficient headroom under its facilities to remain solvent even if its cinemas are shut all the way to [the early second half of 2020]. If you think the doors will open before then, we think Cineworld can survive, and you maybe never see the stock cheaper. But the risks are palpable”, they said.
“Once the pandemic is over, we expect Cineworld to resume its strategy of reinvigorating its US estate and (maybe) acquiring Cineplex. But until then, it could be a bumpy ride”, the bank concluded.
Shares in Cineplex tumbled 17.1% to 44.3p in lunchtime trading.