Cineworld shuts down temporarily after Bond delay, and Weir exits oil and gas

“Hopes that Donald Trump might return to work early this week after a stay in hospital with Covid-19 helped lift the markets on Monday. The FTSE 100 gained 0.5% to 5,933 while other European markets also chalked up solid gains,” says AJ Bell Investment Director Russ Mould.

“One of the first items across the President’s desk should he return to the Oval office is likely to be a potential stimulus package – with a deal still to be brokered between the Democrats and Republicans.

“The political situation in the US is likely to dominate market sentiment for the next few weeks as the election looms, developments around the health of both Trump and his challenger Joe Biden, and the latest polling will all be closely watched by investors.”

Cineworld

“Cineworld will not be the only business that must temporarily close its doors for the second time after suffering from weak demand during the pandemic.

“Despite everything governments are doing to restart economies, a lot still comes down to consumer appetite for doing certain things and going the cinema has not proved to be the resilient leisure activity it was once thought to be.

“Most of the problems have been out of Cineworld’s hands. The primary driver to go to any cinema is the film slate and there just hasn’t enough big-name releases to draw in a crowd since big screens reopened in the summer. Cineworld and other operators have tried to get the message across that their theatres were safe and clean, but that communication hasn’t been enough.

“Cineworld was loaded up with debt going into the crisis and now it seems inevitable that it will have to raise a substantial amount of money to help it continue servicing debt.

“Shareholders have suffered a 50%+ slump in the share price upon the latest news and any equity raise is likely to be done at a discount to the already-depressed market price. That may prompt Cineworld to see if can use more debt rather than equity to prop up the business.

“The decision to push back the release of the new James Bond film, No Time to Die, to April 2021 means there is now a six-month wait for this blockbuster film. Will Cineworld have to wait this long before reopening or will it be confident enough to return earlier?

“There are several other big-name films scheduled for release over Christmas which could be a big enough draw, suggesting that Cineworld may only have to wait a few months. However, studios are going to be very nervous about risking a release in this climate and if James Bond can be delayed then so can other releases.

Weir

“It says something about the low regard in which the oil and gas industry is held by investors that the decision of Glasgow-based engineer Weir to exit the sector is taken so positively.

“In fairness this move had been in the works for a while but has been accelerated as events have overtaken the company.

“Weir was a big supplier of equipment such as valves, pumps and compressors to shale operators in North America and, as a result, has seen a big impact from the downturn in activity driven by falling oil prices.

“By exiting oil and gas, Weir is effectively taking a big bet on mining – placing all of its chips in this area because, while oil and gas is a victim of a move away from fossil fuels, mining could benefit.

“Weir clearly expects continued demand for metals in the production of items like renewables infrastructure and electric vehicles.

“The proceeds from the divestment of Weir Oil & Gas to its much larger US counterpart Caterpillar can be funnelled into the mining business.

“However, the relatively modest amount of cash generated by the sale of a business which, as recently as 2018, generated nearly £100 million in profit probably reflects the fact it is being sold at the bottom of the cycle.”

These articles are for information purposes only and are not a personal recommendation or advice.