...a few days ago when I was writing about the latest Tesco profits warning I left you with a cliff hanger and promised a post about what I did with the proceeds when I sold Tesco at 364 pence back in April 2013. Unfortunately I was unable to follow through with the blockbuster release I had planned due to production delays. Today I'm pleased to be able to bring you the main feature as promised. So without further delay the stock I bought was Cineworld (CINE) a 287 pence, which I have mentioned in passing as a result in the these previous posts.
So why did I buy it over Tesco. I seem to remember that Tesco had its first trading wobble just before then and had since recovered and Neil Woodford had swapped his stake with Warren Buffet. So being concerned about the deteriorating fundamentals at Tesco I chose Cineworld which seemed to be progressing more steadily and I felt I was swapping one consumer related stock with a 30% market share for another. Now while food is a less discretionary purchase, I felt that Cineworld's market share probably benefited from more local monopolies as you don't tend to get multiplex cinemas clustering together in the same way as supermarkets do these days. In addition a night out at the Cinema still seemed to be a cheap night out for people in difficult times, although I must admit the last time I went I was shocked at the price of a ticket as I tend to prefer watching films at home.
Luckily for me it all turned out well and Cineworld also transformed itself into an international / emerging markets play when it did the deal with Cinema City earlier this year. This also enabled me to add a third to my holding via the accompanying rights issue at 230 pence. It struggled somewhat after this, but has more recently put on a good show and given me a happy Hollywood ending.
This prompted me to ditch the pop corn and head for the exit as I felt it was now starting to look expensive on 18x this years earnings with a sub 3% yield. I also worry that cinemas might ultimately suffer the same fate as music and book retailers and get killed by the internet. This is especially so as most of the film output these days seems to be aimed at the younger generation who also seem to be the digital generation. Thus as streaming services get more prevalent and mobiles get more powerful and faster maybe more people will stay at home and watch on their various devices for a fraction of the cost of turning out to the cinema for the family to watch an over hyped film?
Of course I may well be wrong as I'm sure they probably said the same when TV and VCR's came along but Cinema's still seem to be going strong and people will probably want a night out still. So Cineworld may well go onto greater things, but as they say on Dragon's Den "I'm out" in the 394 pence and looking around for a sequel, just hope it can be as enjoyable as this picture (see graph below).
If you would be interested in knowing what that turns out to be and have not already done so, then head over to the portfolio section and put your name down for the mailing list for news on the portfolio service I am hoping to launch at some point in the the New Year.
Finally don't forget that you can see the latest Advent Calendar window for today with a film related theme at the end of this post after the graph.