Cineworld could boost its future growth prospects by snapping up cinema chains in Europe, leading analysts have said.
In a hefty note on European cinema operators, Berenberg has started coverage of Cineworld with a buy recommendation and 650p price target, compared to the current share price of 567.5p, up 2.5p.
Berenberg analyst Benjamin May said Cineworld, which has more than 200 cinemas in nine countries, has already reported a strong performance so far in 2015 and could see further growth in admissions with new potential blockbusters due including James Bond in Spectre, the final Hunger Games and the revived Star Wars franchise.
But Berenberg also believes there are further acquisition opportunities in Europe, following Cineworld’s purchase of Cinema City, the largest operator in central and eastern Europe, in 2014. It said:
Given that many of the largest European countries are still highly fragmented, we believe Europe could be the hot spot for cinema M&A over the next five years. With Cineworld being cash generative and facilities in place, we see further scope for M&A in the coming years.
Cineworld acquired Picturehouse in 2012 and Cinema City in 2014 – highlighting the company’s competitive nature and willingness to grow beyond its home market in the UK.
As we have seen in the US and the UK, mature cinema markets often move towards an oligopolistic structure and we have yet to see this in many European regions.
The continental European cinema markets are still highly fragmented with only around 30% held by the large operators. We believe these markets will consolidate and an increasing number of assets could become available. With investor backing and a clear gap in continental European operations, these assets could be of strategic value to Cineworld. With impressive shareholder returns on deployed capital and the business clearly not afraid of making large acquisitions, we could see Cineworld doing further deals in the mid-term.
