Yesterday, a US federal judge cleared AT&T’s $85bn takeover of Time Warner. It has been taken as a green light for Comcast to submit a new $65bn cash bid for 21st Century Fox’s entertainment businesses, 19% higher than the value of Disney’s offer. As a reminder, in parallel, the UK regulator has recently approved Fox’s proposed takeover of Sky if it sells Sky News. The regulator had already cleared Comcast’s $30.7bn offer for the 61% of Sky that Murdoch does not own (the Murdoch Family Trust being the largest shareholder of Fox). A decision which would have allowed Fox to increase its bid for the 61% of Sky it doesn’t already own to fend off the rival offer from… Comcast (a £12.50 per Sky share cash proposal 16% above the ongoing Fox bid at £10.75/share). But if Comcast bought Fox…
Companies: SKY
The US cable operator Comcast announced yesterday that it was making a £12.50 per Sky share cash proposal (plus dividends), i.e. 16% above the ongoing 21st Century Fox bid (£10.75/share) and 13% above the previous share price close. Comcast specified that a 50% + 1 share minimum acceptance would be required to get approval from its shareholders. Such an acquisition would enable the US giant to diversify outside the US while securing its content supply. Note that a cash proposal “does not constitute an offer or impose any obligation on Comcast to make an offer”. Sky made a statement yesterday specifying that no firm offer had been made at this point, advising shareholders to take no action.
A strong start to the year with solid operating momentum and improved profitability. The strategy is deployed smartly and successfully with a focus on content, innovation and service. We expect some minor upgrades to our forecasts. But beyond these sound results, the main share price driver is, and remains, around the ongoing merger with the parent company.
Disney is near to closing a deal to acquire 21st Century Fox’s assets (said to have been previously approached by Comcast and Verizon) for $60bn on an enterprise value basis, including the latter’s 39% stake in Sky. It appears that the Murdoch family will get a 5% stake in the US media group in the end.
Sky reported a satisfactory Q1 to end-September trading statement with new customers up 160,000 (+90,000 in Germany, +70,000 in the UK, flat in Italy) or +51% (Q1 last year was >100,000). Consolidated revenues reached £3,296m, i.e. up 4.5% (+5% on a comparable basis). Note that there were positive trends across the whole business, with UK & Ireland revenues (67% total group) up 4% despite pressures on consumer spending and on the domestic TV advertising market (estimated by management to have declined by around 2% over the period), Germany & Austria (15% total group) up 8% and Italy (18% total group) up 2%. A positive point to be noted is the 11.1% increase in EBITDA to £582m thanks to good cost control, implying a 110bp improvement for the EBITDA margin to 17.7%. This was despite the investments made in new businesses (£24m, of which c.80% for Sky Mobile and c.20% for Sky Espana). The EBITDA growth in what the group calls “Established Business” was even higher at +15%.
Having gained 77,000 new customers in Q4, putting the full-year to June 2017 at +686,000 (of which +280,000 in the UK, +365,000 in Germany and +41,000 in Italy), Sky reported a satisfactory Q4 operating profit up 8% to £455m. For the FY to June 2017, consolidated revenues improved by 10% on a comparable basis to £12,916m (+£599m of which +£382m coming from subscriptions’ rise) and +5% at CER. As expected, and reflecting the Premier League costs (additional £629m), the OP declined by £97m to £1,468m, finally a well-controlled negative impact, helped by reduced opex. Also note that the group’s net debt remained flat at £6.2bn despite the £379m of adverse forex movements over the period.
The UK Government yesterday made public its comments about the 21st Century Fox bid for Sky, saying that the OFCOM regulator found that it raises public interest concerns linked to the Murdoch family interest in the UK media. Positively, it noted that there are no broadcasting concerns. A more in-depth review is likely to be required and the merger to go through a full investigation. The final decision is awaited on July 14 as the companies were asked to propose some solutions to avoid the review. In case of submission to the Competition and Market Authority (CMA), the regulator would have 6 months to review before reporting back to the UK government.
Sky produced satisfactory H1 to end-December 2016 results, with revenues up 12% to £6.04bn and +6% at constant currencies. The adjusted operating profit reached £679m, down £65m from last year (or -9%) but this was exclusively due to an additional £314m of Premier League costs and therefore was very solid (total costs up 8% and +2% before Premier League; opex down 1%). The group also benefited from £200m synergy savings achieved six months early. The adjusted EPS is down 5% to 28.3p. This is on the whole in line with our full-year to end-June 17e EPS which is expected to be down by 6%. As a reminder, as part of the terms of the proposed takeover by 21st Century Fox, Sky will not pay any dividends in 2017.
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Companies: SKYNUMCLIGTILSG4MACRL
Sky officially launched yesterday its new mobile service in the UK, in a market currently valued at £15.2bn. Considering that current “mobile contracts are inflexible and confusing” and that most people “are buying more data than they need to avoid extra charges”, the group is offering “flexibility and value”. Note that customers’ unused data “will be theirs to keep” (to use whenever they need for up to three years), with the possibility, month to month, of creating their own appropriate plan. Sky TV customers (who are the main target of this new service) will also get free UK calls and texts as well as synching with their Sky+ box.
Sky has just officially confirmed it has received a £10.75 per share cash offer from its major shareholder 21st Century Fox. The group formed an independent committee of the board to consider this proposal, which is in agreement to recommend it…
Sky produced a satisfactory Q1 16 to end-September, adding 106,000 new customers (UK: +35,000, Germany: +49,000, Italy: +22,000), despite the impact of the Olympics in Rio and the UEFA Euro 2016 which were available on FTA channels. Consolidated revenues were slightly above expectations at £3,148m, up 13% on a reported basis (+£355m), partly helped by sterling’s weakness (adding £147m over the period), +7% at CER and +5% on a comparable basis. Coming as a positive point is the further 2% decline in operating costs, as the group is pursuing its cost efficiency efforts in order to counterbalance rising sports expenses within an highly competitive context.
Sky produced a satisfactory full-year to end-June 2016 results, with consolidated revenues up 6.6% to £11,965m (+7% in UK, +12% in Germany, +2% in Italy). The adjusted operating profit reached £1,558m up 12%, i.e. a 60bp margin improvement at CER to 13% (UK: +80bp to 18%, Germany: -50bp to 2.4%, Italy: +110bp to 0.3%) and the adjusted EPS rose by 13% to 63.1p. These results were supported by strong 808,000 new customer additions over the year (+445,000 in the UK, +346,000 in Germany and 17,000 in Italy) to 21.8 million (+160,000 in Q4) and 3.3m new paid-for subscription products. Retail subscription revenues rose by 5% (+6.2% in the UK, +9.8% in Germany) but the churn rate deterioration in the UK (to 11.20% compared with 10.70% a year earlier) came as a slight disappointment as we were expecting a stable level of 10.70%. Looking at FY to end-June 17e, management is guiding for revenues rising at a similar annual run rate (+5% to +7%; supported in the UK by a c.5% price increase and up-sell mix and by new services and progressively eliminating customers with discounts) while intending to offset the c.£600m one-off rise in cost of the new three-year UK Premier League contract by cost control. It also specified it is intending to raise the dividend at a similar rate next year (was +2% to 33.5p in FY June 2016 after the final of 20.95p) despite the UK business being impacted by this one-time step in cost. Note that, regarding the Brexit impact, CEO Jeremy Darroch highlighted that “people stay at home and watch TV when finances are tight”...So far so good as long as one can indeed continue to provide strong content at reasonable costs and selling prices, something we consider Sky masters.
Sky has just released good Q3 to end-March results, adding 177,000 new customers (70,000 in the UK, 73,000 in Germany, 34,000 in Italy) which takes its total customer base to 21.7m. Over the 9 months period, consolidated revenues increased by 4.8% to £8,715m (subscription revenues up 4%) and OP by 12% to £1,143m, i.e. a 13.1% margin versus 12.3% for the same period last year. Deteriorating churn rates, namely in the UK, came as a slight disappointment but the group managed to maintain its ARPU there (£47), a positive amid always rising competition…
BSkyB produced very satisfactory H1 to end-December results, with revenues up 5% to £5.7bn, adjusted operating profit up 12% to £747m (i.e. a 13.1% margin approximately in line with our c.13.2% expectation and compared with 12.3% a year earlier) and adjusted EPS up 10% to 29.9p. The Board has announced a 2% increase in the interim dividend to 12.6p and the appointment of James Murdoch as the new Chairman of the group who will replace the departing Nicholas Ferguson from April.
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Reach plc today provides a strong Q4 trading update highlighting upgraded FY’20E AOP expectations of £130m-£135m ahead of consensus (cons: £124.3m) and record growth in Digital. Digital sales growth has recovered strongly since Q2, accelerating to 25% y/y (Q3: +13%; H1: -1%) benefitting from both higher traffic through implementation of Group engagement initiatives and yield recovery as advertisers in CV19 impacted verticals return. Print circulation revenue decline moderated to 11.7% y/y in Q4 (Q3: -12.6%), a significant deceleration from the -18.2% y/y in H2 and modestly better than our H2 forecasts. Continued focus on audience engagement, the quality of audience data and insights, and further extension of locally focused digital content we see driving further gains online, with Digital sales still on track to double on a four year view. We are upgrading forecasts, increasing FY’20E sales, AOP and adj FCF by 2%, 6% and 5% respectively, with upgrades filtering into future periods. A 17% FY’21E FCF yield sits well in advance of global peers (3%-7%), with a 10% FCF yield generating an intrinsic valuation of 315p/share.
Companies: Reach plc
Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb. Moonpig, the digital greeting card company, is planning an IPO with a potential valuation of £1bln, according to multiple media reports. Further details expected to be announced over the next two weeks.
Companies: ZPHR PANR PRSM SENS CYAN G4M ITX CRCL FEN ZIN
AMTE Power, a developer and manufacturer of lithium-ion battery cells for specialist markets, announced its intention to seek admission to trading on AIM. Admission is expected to take place during March 2021. The Company intends to raise approximately £7m by way of a placing of new ordinary shares in the capital of the Company. Timing TBC. Samarkand Group Limited, the cross-border eCommerce technology and retail group opening up the world's largest market for brands and retailers, intends to IPO on the Apex Segment Aquis Stock Exchange Growth Market. Admission is targeted for March 2021. Cellular Goods a UK-based provider of premium consumer products based on biosynthetic cannabinoids announced its intention to join the main market (standard) this Spring. Target valuation £20m raising c. £8m “to finalise the development and launch of a range of the Company's premium-quality consumer products based on biosynthetic cannabinoids, which is fully compliant under UK law.” NextEnergy Renewables to launch an IPO on the Main Market. NREN is a differentiated renewables investment Company that aims to capture the most attractive private renewables and energy transition infrastructure investment opportunities globally. Targeting a £300m raise. NREN is targeting total returns of 9-11 per cent. per annum (net of all fees and expenses but including the Target Dividend and capital appreciation) . The Company's target dividend yield for the first full financial year to 31 December 2022 is 5.5 pence. Due Early March 2021. Auction Technology Group is considering an IPO on the Main Market. The Group operates six world-leading online Marketplaces and proprietary global auction platform technology for curated online auctions. In FY20 the Group delivered pro forma revenue of £52.3m, supported by notable underlying year-on-year growth from both Standalone ATG Group and Standalone Proxibid Group (12.4 per cent. and 40.4 per cent., respectively). For the same period, the Group delivered a strong profitability performance of £22.3m pro forma Adjusted EBITDA representing a pro forma Adjusted EBITDA margin of 42.6 per cent. Expected March 2021. Digital 9 Infrastructure launch an initial public offering on the Specialist Fund Segment of the Main Market of the London Stock Exchange, by way of an initial placing and offer for subscription for a target issue £400m. Digital 9 Infrastructure plc is a newly established, externally managed investment trust. The Company will invest in a range of digital infrastructure assets which deliver a reliable, functioning internet. The IPO Prospectus is expected to be published in March 2021. Team PLC announced their plans for an AIM IPO. Team owns Theta Enhanced Asset Management Ltd, trading as Team Asset Management. This is a Jersey-based active fund manager providing discretionary and advisory portfolio management services to private clients, trusts and charities. Assets under management were GBP291m in November, up from GBP140m in December 2019 . The Company is seeking to raise no less than £5 million. The Placing will be priced on a pre-money valuation for the Company of £7m. Targeting March Admission. Virgin Wines UK Plc recently set out their plans for an AIM IPO. Virgin Wines is a direct-to-consumer online wine retailer that sells products to retail customers in the UK through two subscription schemes and a pay-as-you-go offering. The Group also sells a range of beers and spirits and operates a B2B sales channel for corporates. Deal details TBC but media reports suggest a £100m valuation. Targeting 2nd March Admission Fix Price announces its intention to float on the Main Market of the London Stock Exchange. Fix Price is one of the leading variety value retailers globally and the largest in Russia, with more than 4,200 stores. Fix Price has revenues of RUB 190.1bn, RUB 142.9bn and RUB 108.7bn for 2020, 2019 and 2018, respectively. Adjusted EBITDA for the same years was RUB 36.8bn, RUB 27.2bn and RUB 14.2bn, respectively. The Offer would consist of an offering of GDRs by certain existing shareholders of the Company. Great Point Entertainment Income Trust PLC announced its prospectus has been approved by the FCA. Great Point Entertainment Income Trust PLC is a newly established, externally managed closed-ended investment company. The Company will provide project finance to content makers and commissioners in the global television and film production industry via senior loans secured against pre-sold intellectual property (IP) rights. GPEIT's investment objective is to provide Shareholders with dividend income and modest capital growth through exposure to media content finance. According to media reports, Deliveroo, are expecting to release their IPO plans on 8th March. The company raised more than $180m in January with a valuation of more than $7bn.
Companies: OTMP MNO FNX NSCI CNIC CHAR RBD CLP DXSP CUSN
Upon Admission to AIM, Nightcap will acquire The London Cocktail Club Limited (the "London Cocktail Club"), which is an award winning independent operator of ten individually themed cocktail bars in nine London locations and one location in Bristol. Offer TBC. HSS Hire Group, HSS.L transfer from Main to Aim. Mkt Cap c. £70m. Recently raised £52.6m. Leading supplier of tool and equipment for hire in the United Kingdom and Ireland and has provided equipment hire services in the United Kingdom for more than 60 years, primarily focusing on the B2B market. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange.
Companies: PMI RMM SUN BOIL ITM TRMR MLVN 88E IME ANP
I wake up in my DFS (DFS) bed with a Gin and Fevertree (FEVR) hangover, place a trade on my phone through CMC Markets (CMCX), have a quick go on my Hornby (HRN) train set, eat half a box of Hotel Chocolat (HOTC), all before heading out in my brand spanking new Joules (JOUL) wellies to my local Metro Bank (MTRO) branch. All of these well-known consumer brands share a common theme in that they are all listed or quoted on the London Stock Exchange. It’s been a year so far reminiscent of 2014 when we saw a flurry of large brands rush for the IPO door such as Pets at Home (PETS), Saga (SAGA), AA (AA) and Poundland (PLND). Most looking for a private equity exit. The IPO adventure of these companies tends to be fairly boiler plate: the valuation is a battleground between the exiting private equity house and incoming institutional investors, the book is many times covered and the scale backs are eye watering. But what makes these companies more alluring to investors than a company nobody has ever heard of which in fact may be profitable, dividend paying and ultimately, on a lower valuation?
Companies: CMCX CSP VMUK WJG ACRL ASCL
De La Rue remains challenged. New management has to navigate a difficult Currency market and consequent concern over its finances. The swift response in terms of a turnaround programme is a positive start, accelerating cost cutting initiatives and cash management measures, including suspension of the dividend. Restoring stability and rebuilding confidence in the investment case is likely to take some time.
Companies: De La Rue plc
Reach’s trading update highlights revenue growth tracking comfortably ahead of market expectations going into December. Digital sales, underpinned by strengthening customer engagement, has accelerated substantially to +16.2% y/y in the 5-months to 22 November (H1’20: -1.0%), and is strongly ahead of N1S H2 forecasts (+2.7% y/y). Print sales were in-line, with increased cross-promotion across Reach’s portfolio leading to stabilisation in HY y/y trends (H2 to date: -19.7%; H1: -20.1%). Management also report a ‘significant’ reduction in costs in-line with the Group’s transformation strategy, which combined with a higher Digital weighting, has pushed up AOP margins ‘materially’ on a sequential basis. As a function of this strong update, we upgrade FY’20E sales, AOP and adj FCF forecasts by 1%, 7% and 8% respectively. FY’21E FCF yield of 22% (pre-pension contributions) is materially ahead of global peers (4%-7%); a yield of 10% generates an intrinsic value of 310p/share.
Tremor has announced that December trading materially exceeded its prior estimates, as its platform’s momentum has continued to accelerate since its last update on 30 November. Tremor now expects FY20 revenue and EBITDA to be in the range of $404-408m for revenue (from $390-400m), and $58-60m for EBITDA (from $50-52m). This leads us to upgrade our FY20 and FY21 revenue forecasts by +2-3% to $406m and $479m, and upgrade our FY20 and FY21 EBITDA by +16% and +10% to $59m and $68m. As Tremor’s platform benefits from strong operational gearing, this drives upgrades to EPS of +28% in FY20 and +16% in FY21. Our net cash then increases by $11m in FY20 to $96m, and despite including $10m of buyback in FY21, our FY21 net cash increases by $12m to $117m as we partially unwind conservative working capital assumptions. This is the fourth upgrade to our Tremor forecasts since COVID-19 impacted the advertising market and Tremor in Q2 20, and Tremor subsequently adopted a prudent approach to its FY20 guidance. We continue to mirror this conservatism in our FY21 EBITDA of $68m, which compares with H2 20 EBITDA of $57m, and our FY21 EBITDA includes additional investment as Tremor looks to gain share within a market growing at over 20% pa. From p9 we also highlight that Tremor is demonstrating the same trends as its US ad tech peers Magnite, PubMatic, and The Trade Desk, with each forecasted to see +15-35% organic revenue growth and +10-60% organic EBITDA growth in FY21, as they focus on expanding in connected TV. However, Tremor is trading at a major discount to its US peers on all metrics, such as FY21 EV/EBITDA of 9x vs 41x, 29x and 104x, and at a discount to the finnCap Tech 40 on 17x with +9% EBITDA growth. As Tremor continues to deliver and exceed expectations, we do not expect that its current valuation will be sustainable due to market or external interest, and we upgrade our target price to 800p based on 20x FY21 EBITDA.
Companies: Tremor International Ltd.
CentralNic has made a small acquisition of SafeBrands, an online brand protection software provider and corporate ISP based in Paris, for a cash consideration of up to €3.6m (0.9x FY19 revenue). €3m is payable upfront and €0.6m will be paid subject to meeting FY20 performance objectives. SafeBrands operated at close to break-even in FY19. Separately, CentralNic has also reorganised its Corporate division, rebranding it as the Enterprise division. Based on our estimates, the company trades on an FY21e P/E multiple of 15.8x and 9.8x FY21e EV/adjusted EBITDA. We expect earnings-accretive M&A to bring multiples down further as CentralNic consolidates a globally fragmented market of sub-scale, cash-generative businesses.
Companies: CentralNic Group Plc
Tremor’s listed peer Magnite has announced that it intends to acquire SpotX for $1.17bn in cash and shares, or c10x SpotX FY20 net revenue of $116m. After Tremor upgraded its FY20 net revenue to $180m in its January trading update, 10x net revenue would imply a Tremor valuation of $1.8bn or 1,000p per share. The SpotX transaction enables Magnite to grow its scale within connected TV and digital video advertising, and will provide Magnite with $67m of FY20 net CTV revenue, or almost triple Magnite-SpotX’s Q4 20 net CTV revenue to $42m compared to $15.3m for Magnite standalone. In comparison, we expect Tremor to report over $15m of net CTV revenue in Q4 20 and $35m for FY20 as Tremor’s momentum in CTV has continued to accelerate. However, before the Magnite-SpotX transaction, Magnite’s market cap was over $4.8bn compared with Tremor’s market cap of $1.0bn. As Tremor continues to deliver and exceed expectations, we do not expect that its current valuation will be sustainable due to market or external interest, and today’s transaction highlights that M&A is taking place around the growth in CTV and digital video that Tremor is capitalising upon. On 12-month forward forecasts, Tremor is currently trading on 13x EV/EBITDA with conservative EBITDA growth of +15%, which compares to US peers Magnite, The Trade Desk, and PubMatic on 61x, 114x, and 53x 12-month forward EV/EBITDA with EBITDA growth of +10-60%.
