Shares digital

Cineworld (CINE) – Finals PTP: £12.4 (-7.7m) Divi: 6.5p (n/a)

Fears over losing one’s job, struggling to pay the mortgage and a UK recession are driving more people to the cinema, according to Cineworld chief executive Stephen Wiener. ‘When people are upset about everyday life, they want to get away from it all.’ Hiding in a dark room for two hours may not sound like complete relaxation to everyone, but Cineworld reckons this makes it more resilient during economic uncertainty than other leisure operators.

A move into profit and continued expansion illustrates that the business has indeed struck gold with a nation of film lovers. One of the wettest summers on record helped UK cinemas increase box office taking by 7.7% to £904.9 million in 2007, according the Film Distributors’ Association. A strong line up of blockbuster films including the new Harry Potter and James Bond installments suggests that 2008 will be even better.

Cineworld’s box office grew in line with the industry to £185.7 million. Box office takings account for around two thirds of revenue and non-ticket items like food and drink continue to see higher sales. The other key revenue contributor is advertising, where concerns over a contract renegotiation with Carlton Screen Advertising knocked the shares down by nearly 60% prior to the results.

An advertising joint venture with Odeon Cinemas has since been formed to replace the Carlton contract. It gives more certainty on the advertising situation but should also see Cineworld service advertising needs of other cinema chains.

It plans to install satellite technology to receive new adverts which may eventually be broadcast digitally, much cheaper than having to courier new promos and convert them to 35mm film. In time, new films may also be sent to cinemas via satellite, but only once Cineworld is sure the signal can’t be intercepted by film pirates.

Shares says: With the advertising glitch ironed out, Cineworld looks a solid long-term investment.

by: Dan Coatsworth