Mondo TV has returned to profit in the first half of FY19, on its rebased business model with a more concentrated portfolio. Financial performance is tracking to management’s plan and our only forecast changes reflect IFRS 16 adoption. Visibility through H219 and into FY20 on the production pipeline is improving. The streaming of YooHoo & Friends on Netflix raises the group’s profile and the Toon2Tango partnership opens more European opportunities. The shares are valued well below global content peers.
Group H119 production value of €12.8m was 26% down on H118 but well ahead of the €4.9m achieved in H218. These figures put Mondo TV well on track to meet management’s published business plan target of €24.5m for FY19. H119 EBITDA of €7.8m compares with the FY19 target of €14.3m, although this latter figure does not include the uplift from the adoption of IFRS 16 (€0.3m of amortisation of usage rights is identified for the half-year). The accounting change also reduces the reported net cash position by €1.8m to €1.7m at the period end, on gross cash resource of €10.5m. There is no new news on the outstanding disputes with Asian ex-customer New Information Tech and the Italian tax authorities
The upcoming Mipcom at Cannes (12–17 October) will set the mood for the global content market. The disruption from new streaming platforms (Disney+, Apple TV+, WarnerMedia, NBCUniversal etc.) drives competition for quality content, but much of the additional spend is focused on ‘tent pole’ properties. Children’s content is valued to attract household subscriptions and traditional broadcasters have been less open to commission new series for some time. Licensing and merchandising markets have been lacklustre in recent months, on poorer economic conditions and the impact of (and threat of further) US Chinese trade sanctions also weighing on advertising revenues.
Since the start of 2019, Mondo TV’s shares have traded in a €0.93–1.64 range. This represents a substantial discount to global peers (parity on EV/EBIT would indicate a share price of €2.82; on a P/E basis €1.75). This is slightly below levels in May as sector earnings expectations have moderated, despite the uplift in the EntertainmentOne valuation post Hasbro’s bid. A DCF at a WACC of 11.5% and terminal growth of 2% suggests a price of €2.09. The average of these three values is €2.22 (€2.32 in May), nearly double the current market price.