Cineworld opened a record 18 sites in 2015, with 10 in the UK and eight in Israel and the CEE region. This added 156 new screens to its portfolio, taking Cineworld to 2011 screens at the end of the year and reinforcing its position as the second-largest cinema chain in Europe.

45 cinemas in pipeline

The group is expecting to open 13 sites this year and 15 in 2017. These sites will add 281 new screens, raising the total number by 14 per cent over the next two years. The group says it has 45 new cinemas in the pipeline over the next four years, with 465 screens. This would increase the number of screens by 23 per cent over the period.

Nearly half of the new cinemas in 2016 and 2017 will be in the UK, but the larger cinemas with more screens will open in Israel and the CEE region. The long-term growth story in our view will be driven by central and eastern Europe, where the market is relatively under-served.

The investment case for Cineworld is that the company offers attractive exposure to consumer leisure spending. Cinemas offer a social way for people to get out of the house and get immersed in Hollywood-style escapism. The rise of services like Netflix is a potential threat, but these services do not, in our view, offer the same sort of experience. They cannot be dismissed out of hand, however, as UK cinema admissions peaked in 1946 at 1.6 billion.

The rise of the multiplex (multiple screens) in the 1980s, however, appears to have stabilised the industry. UK cinema admissions hit a low of 54 million in 1984, but more than doubled over the next decade to 114 million in 1993.

Cineworld performed well in 2015, with pro-forma revenue up 12.4 per cent to £705.8 million. This was driven by a 6.5 per cent increase in pro-forma cinema admissions to 93.6 million on the back of a strong set of movie releases. Net debt fell to £245.2 million by the end of the year, versus £281.9 million at the start, and net debt to EBITDA fell to a modest 1.6 times.

Cineworld's forecast price-earnings ratio for 2016 is 16 times, forecast to fall to 13 times by 2018. The forecast yield increases from 3.4 per cent in the current year to 4.2 per cent by 2018, with the payout 1.8 times covered in that period.

Greg Smith is the head of research at investment research and funds management house Fat Prophets.

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