Mondo TV’s Q119 figures are as flagged, tracking to its December 2018 business plan. Our revenue and earnings numbers are unchanged. YooHoo to the Rescue is now airing globally on Netflix, giving a strong start to management’s ambitions to broaden geographic revenue spread. The group has settled with three of the four Asian customers that withdrew in H218, but remains in dispute with one. It has also disclosed that it is subject to a further tax authority investigation, which it is confident will find in its favour. A further mark down in the share price, now off the lows, leaves the valuation at a deep discount to peers and the DCF.
Although revenue and earnings were well behind Q118 (-47% revenue, -55% EBITDA), this is as expected from the Q418 rebasing of the business (see our previous notes). Production value of €5m and net income of €1m are in line with earlier indications and the planned FY19e targets of €24m and €4m respectively. Net cash of €6.0m at 31 March compares to €8.1m at the year end and we have slightly reined in our year-end projection from €6.3m to €5.9m with investment in production, but this just reflects assumptions on timing. Management’s emphasis on more co-production reduces the production risk but also increases the pool of creativity globally it can draw on. It has stated that it is particularly looking for new industry and commercial partnerships in Germany and Northern Europe.
The Q1 statement included more detail on the Q418 ructions in Asia, where three of the four counterparties (Broadvision Rights, Hong Kong Yiqi Culture and Hong Kong Nine Technology) have now reached terms. The group remains in dispute with New Information Technology. Mondo has also disclosed a new tax investigation that involves verifying offsets made using tax credits from prepaid taxes in 2014, but with the period 2012–18 under scrutiny. The value of these offsets is €13.5m (plus any penalties plus interest). With previous tax authority investigations finding in Mondo’s favour, no provision has been made for the latest.
Following the setback, Mondo’s valuation stands at a substantial discount to global peers (parity on EV/EBIT would indicate a share price of €2.89; on a P/E basis €1.95). A DCF at a WACC of 11.5% and terminal growth of 2% suggests a price of €2.11. The average of these three values is €2.32, more than double the current market price.