Entertainment One’s trading update to 23 September (ie most of H1) does not disclose figures, due to the Hasbro bid. The group is heavily weighted to H2. Family & Brands achieved flat revenues against prior period, despite a difficult trading environment. Film, TV and Music (FTM) revenues were slightly behind, with a strong music performance offset by unflattering comparatives in film and TV due to timing and mix. The independent library revaluation was $2.1bn at end March (2018: $2.0bn). The acquisition agreement with Hasbro, for 560p per share cash, is to be put to share-holders on 17 October, with the circular now available. Approval requires two-thirds of votes cast to be in favour. Our forecasts are withdrawn.
Companies: Entertainment One
Entertainment One (ETO) has reached a multi-year production agreement with Mark Gordon to develop and produce content. The continuing alignment of his efforts with the group’s objectives is good news and removes any residual uncertainty post last month’s press stories. We have now updated our forecasts for the bond refinancing; the reduction in forecast interest costs results in uplifts to PBT and EPS for FY20e and FY21e of 4–5%. ETO is currently trading at a discount of around 7% to peers, based on our sum-of-the-parts valuation.
Entertainment One’s full year results showed strong growth in underlying EBITDA, +21%, broadly in line with market and our estimates. The Family & Brands division is benefiting from the higher margins from advertising and streaming video on demand (AVOD and SVOD), with underlying EBITDA up 28%. Film, TV & Music’s performance reflects the completion of the transition in film and the shift in mix toward TV, with an improvement in underlying EBITDA margin from 11.6% to 14.6%. Our revised forecasts show the positive impact of the recent Audio Network acquisition (and the boost from IFRS16), diluted at the EPS level by the additional shares.
Entertainment One (eOne) has announced the acquisition of Audio Network for £165m (cash-free, debt-free basis) alongside a share placing at 450p to raise c £130m. Audio Network’s business model meshes very neatly with eOne’s, adding both music resource and a substantial recurring revenue base while giving the group’s existing artists and catalogue new revenue-generating opportunities. The purchase price represents 15x LTM reported EBITDA and management indicates the deal would be earnings enhancing in its first year (FY20).
Entertainment One’s (eOne) year-end trading update indicates financial performance in line with expectations, with the groundwork in place for good progress across both Family & Brands and Film, Television & Music. The benefits of the transition towards production in film are clear, with better margin potential, a reduced risk profile and stronger free cash flow. Our EBITDA and EPS forecasts are unchanged and we have introduced numbers for FY21e, showing continuing progress. The intense competition between new and competing SVOD providers is driving a very healthy appetite for high-quality entertainment content.
Entertainment One’s interims are in line with expectations. Our FY19 and FY20 revenue forecasts are trimmed but we have lifted expected margins, leaving EBITDA and EPS broadly unchanged. This reflects the further mix shift to Family & Brands, where good momentum continues behind Peppa Pig and PJ Masks, especially in China. Film & TV is part-way through its transition from distribution to content production, with divisional EBITDA also impacted by an H2-weighted release schedule. The net effect was a group EBITDA margin of 14.8% (H118: 13.3%). Changing consumption patterns provide a strong backdrop to high-quality content providers such as eOne. We regard the shares as attractively priced on earnings and with regard to the portfolio valuation of $2.0bn.
Entertainment One’s (eOne’s) pre-close trading update confirms the group is trading well and is on track to meet full-year market forecasts. There is no change to our forecasts at this juncture. The group’s rights library has been independently reassessed and has increased to a value of US$2.0bn, from US$1.7bn at the time of the last valuation in March 2017. The group’s current market capitalisation is c £1.8bn (US$2.3bn). Recent strong share price performance has narrowed the discount to peers, but further positive news flow would allow additional upside.
Entertainment One’s (eOne’s) capital markets day (CMD) presentation highlighted its strong content and depth of management, with its independence allowing the luxury of platform agnosticism. With the major tech platforms building audience engagement to drive their broader business models, high-quality content remains a key differentiator that plays to eOne’s strengths. The strategy for Family & Brands is to focus on a tight portfolio, maximising merchandising and licensing opportunities. Recent strong share price performance has narrowed the discount to peers, but further positive newsflow would allow additional upside. Our forecasts are unchanged.
An excellent performance from Family & Brands and strong growth in Television offset declines in Film to deliver EBITDA growth of 11%, which is in line with forecasts. The group is in good shape entering FY19 and is on track to deliver to its five-year plan to double EBITDA by 2020. The shares are on a c 40% P/E and c 20% EV/EBITDA discount to global peers and we believe they offer good value.
eOne’s bolt on acquisition of Whizz Kid in the UK further builds on its expanding capabilities in the non-scripted television production segment. The £6.9m consideration paid for a 70% interest will be part funded utilising some of the excess proceeds of the recent placing and shares.
eOne’s FY18 trading update puts the group on track to deliver to expectations with continued excellent momentum in Family, a solid performance from Television and a better second half in Film.
eOne has announced the proposed acquisition of the remaining 49% of the Mark Gordon Company (MGC) for $209m, financed with a mixture of new equity and debt. We estimate that the deal will be slightly earnings accretive in its first year before an anticipated $7-10m of cost synergies. In our view it is a logical extension of the group’s strategy to build a diversified content business.
eOne’s H118 results delivered a 36% increase in EBITDA driven by an outstanding performance in Family with Peppa Pig making its mark in China and the rapid global roll out of PJ Masks establishing it as a global brand. Management has reiterated that the company is on track to deliver full year expectations; we have updated our forecasts for mix effects but leave our overall EBITDA forecast unchanged.
Operating performance across all Entertainment One (eOne) divisions is in line with management’s full year expectations, with the H1/H2 weighting expected to be broadly in line with last year. As the group’s business grows, so does its library valuation, which has increased by 13% y-o-y to $1.7bn, underpinning c 80% of the current EV.
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Reach plc, the market-leading commercial regional and national news publisher, is approaching a positive revenue inflection point which is transformational to perceptions of the Group. With the 5th largest digital unique visitor base (>40m) in the UK (behind the likes of Facebook and Google), the Group has a material, yet currently under-exploited opportunity which could see Digital revenues double on a 4-year view. Among initiatives to unlock value, new management is focused on granular data capture, audience stratification, and targeted, highly-relevant content dissemination, with successful execution already manifesting itself in rising user engagement. Cost efficiencies and a mix shift towards Digital support margin expansion, and are forecast to improve already attractive FCF margins (FY’20E: 19%). A progressive dividend (N1S FY’21 DPS: 6.8p) augments the investment case whilst an intrinsic value of 300p/share offers significant upside potential.
Companies: Reach plc
4imprint is an easier to use, more convenient and better value alternative in a very large, fragmented market. Backed by an industry-leading marketing engine, these characteristics have enabled consistent market share gains, and yet share is still modest at 3%. In 2009, the market fell by 22% and 4imprint’s sales by 3% and EPS by 30% as the opportunity to invest in short-term marketing cost for long-term gain was grasped. In 2010, 4imprint’s sales rose by 15% and have averaged +18% p.a. since. The pandemic has hit 4imprint’s promotional products market hard, with industry sales down -44% in Q2, but the group has continued to invest in marketing throughout and is now accelerating spend, backed by its expertise and net cash balance. The timing and pace of a recovery is, of course, very hard to predict, but we believe history will repeat, and that 4imprint will accelerate market share gains and profits can return to pre-COVID levels in 2023.
Companies: 4imprint Group plc
Kape has announced that it has raised gross proceeds of $115.5 million through a significantly oversubscribed placing and retail offer of 59.2 million shares at 150p and will use $72 million of the proceeds to buy out the two major vendors of PIA, the transformational deal which the Group completed at the end of 2019. The remaining $43.5 million will be used to strengthen the Group’s balance sheet as it looks to select further acquisitions. There is an additional tax-related cash benefit of around $50 million over 15 years that is now available to Kape following this change to the PIA deal structure. This seems an intelligent way of removing any potential share overhang while also adding further to the group’s M&A firepower. Kape will cancel the shares which it acquires from the vendors and will not issue the vast majority of the deferred shares. With trading still robust and guidance unchanged, we make no alteration to our underlying business assumptions. Our EPS estimates reflect the changes to the shares in issue, both existing and prospective.
Companies: Kape Technologies Plc
Future today released an update highlighting FY’20E adj EBITDA which is trading towards the top-end of consensus (£86.3m-£91.0m; N1Se: £88.5m). Strong performance has been supported by acceleration of the consumer shift to digital, positive cost control and cost synergy extraction from the TI Media acquisition (c.£9m annualised savings delivered so far). Migration of TI Media sites to the Group’s Vanilla platform are underway, whilst Hawk (price comparison platform) has been successfully deployed on three key existing TI Media websites. TI Media represents a significant opportunity to drive strong EBITDA growth in the medium-term as the portfolio transitions to digital, whilst the Group also has a number of additional levers to drive outperformance against conservative consensus forecasts. We leave forecasts unchanged for now, although upside risk is building. Future offers a 7% FY’21E FCF yield on N1Se forecasts, peers offer closer to 4%.
Companies: Future plc
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: DLAR DELRF DL1C
The MISSION’s H120 results were as indicated at the trading update, with headline pre-tax loss of £2.2m. H220 looks stronger, with new clients and new business and the continuing benefit of a broad agency portfolio across verticals. It is adding central resource to service group agencies efficiently, setting up a digital production studio and using recently acquired Innovationbubble for behavioural consultancy. Careful cash management reduced net debt to £0.9m at end June, with annualised cost savings of £0.7m targeted. Our unchanged PBT and EPS forecasts leave the shares trading below peers.
Companies: Mission Group Plc (TMG:LON)Mission Group Plc (M7K:BER)
Edison Investment Research is terminating coverage on De La Rue (DLAR) and Walker Greenbank (WGB). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant.
Companies: DELRF DLAR DL1C
We highlight this morning’s profit warnings from IQE (no coverage) and Nanoco (no coverage) as further support of: (1) our Year Ahead 2019 thesis to avoid hardware exposure as the most likely source of downgrades, and gain exposure to high-visibility recurring revenues and stronger balance sheets; and (2) the apparent end of the smartphone supercycle. We reiterate our Buy ratings on CloudCall* (CALL LN, PT 270p), Vianet (VNET LN, PT 142p) and Kape (KAPE LN, PT 120p) as our preferred names to exploit our key themes for 2019.
Companies: CALL VNET KAPE
With four acquisitions in FY19, CentralNic is a leading buy and build player in the domain name space, focused on consolidating a fragmented market. It offers a broad range of internet services, including reseller services, where it is the number two provider globally, as well as internet services to corporates and SMEs. Supported by underlying organic growth (6% company estimate), CentralNic has grown at a revenue CAGR of 69% from 2014–19 and has attractive cash flow dynamics with near 100% cash conversion and 92% repeat revenues. Q120 was in line with expectations and management has yet to see a material impact from COVID-19. The company is valued on an FY20 EV/EBITDA of 9.0x and a P/E of 12.4x, a 65% discount to its peer group, with our DCF indicating further share price upside. M&A should bring CentralNic’s multiples down further.
Companies: CentralNic Group Plc
MISSION’s wide-ranging activities, efficient ability to work remotely and close, long-standing client relationships has enabled it to weather the COVID-19 crisis in relatively good shape. It has continued to win new business and run assignments throughout. Lower revenues as clients pulled or postponed campaigns mean a H120 loss of c £2.2m, but we expect this to be more than recouped in H220. A mix of entrepreneurialism and collaboration makes the post-COVID-19 outlook attractive, but this is not currently fully reflected in the share price.
YouGov’s online business model and direct panel relationships give it a clear advantage through lockdown. Both state and commercial interests have an increased need to gauge and track shifts in consumer attitudes, which YouGov is well placed to monitor through its growing suite of products and services. The group has a strong, cash-positive balance sheet and a major asset in its connected data library, termed the YouGov Cube, which now contains over 15 years of data. YouGov’s share price has recovered from the mark-down at the earlier stage of the pandemic, with the rating reflecting its premium growth and strong market positioning.
Companies: YouGov plc
GlobalData has delivered strong interims, further validating the Group’s core operating model and product strategy. Whilst event delays into H2 saw the top-line moderate 2% y/y to £86.7m, underlying subscription revenue rose +7%, ahead peer growth rates (3%-6%). EBITDA margins benefitted from organic cost decline (particularly travel and events), whilst paused sales and marketing FTE investment also supported margin expansion (+410bps y/y to 31.4%). Underlying deferred revenue rose +3% to £80.6m (ex events) offering a high degree of earnings visibility. GlobalData continues to execute on its mission to become the world’s trusted source of industry data, analytics, and insight, embedding its product in customer workflows to support decision making through provision of rich data, analytics and insights. The Group looks exceptionally well placed to build value, benefitting from strong incremental revenue margins against an increasingly static cost base.
Companies: GlobalData Plc
CentralNic has announced the conditional US$36m asset-based acquisition (payable in cash on completion) of one of Team Internet’s closest competitors, Codewise, a domain monetisation business based in Poland. Based on the year to 30 June 2020, the deal values Codewise at 0.60x historical sales (US$60.3m) and 4.9x adjusted EBITDA (US$7.4m). The deal is being funded by way of a share placing, with CentralNic having placed 40m shares (21% of the equity) at 75p per share (a 6% discount to the 10 September closing price), raising gross proceeds of £30m. Assuming a year end completion date, we estimate that the deal will be materially (c 18%) EPS enhancing in FY21. The acquisition is highly complementary to the successful Team Internet acquisition, completed in December 2019, building CentralNic’s technology base and market share in domain monetisation, diversifying its client base and strengthening the group’s development capability and senior management team.
These were impressive FY 20 results that came in at the top end of guidance given back in March. The Data & Information core has proven resilient whilst the swift digital transition with Training and Networking has mitigated the worst revenue impacts from lockdown. Underlying cash generation was healthy, and management have been able to materially de-risk the balance sheet without needing to raise dilutive, new equity capital. In this note, we are re-initiating coverage will full estimates published for FY 21 and beyond. We also discuss the revenue scenarios outlined by the company at the FY 20 results announcement and what these imply in terms of earnings outcomes. Both of these scenarios hinge on the key swing factor for FY 21; namely whether face to face events can resume in time for Wilmington’s H2. Our estimates effectively represent a middle ground between these two outcomes. In our eyes, the current valuation is difficult to justify on fundamentals, nor on a comparative basis. Although we do not know the full current year outcome for the rest of the peer group, we would be surprised if many do better than Wilmington and yet the valuation gap has widened. Looking at the components within the group, the argument can be made that Risk & Compliance alone could be worth more than the current group market capitalisation. This suggests that investors are being given a free option on the c.£70m of revenue and £6m of EBIT (£80m / £13m pre-Covid) that sit outside Risk & Compliance.
Companies: Wilmington plc
Tremor has announced in today’s trading update that its platform has continued to gather further momentum since H1 20 results on 22 September, and it now expects FY20 revenue and EBITDA to be in the range of $340-360m for revenue and $30-36m for EBITDA. This leads us to upgrade our FY20 revenue forecasts by +6% to $350m from $330m, and upgrade our FY20 EBITDA by +32% to $33m from $25m at an incremental margin of 40%. This reflects that Tremor’s platform benefits from strong operational gearing that translates to EFCF, and we increase our FY20 net cash to $79m from $71m. This strengthening momentum for Tremor’s differentiated platform reflects that it is capitalising upon a rebound and shift in advertising spend through the success of the initiatives it launched in 2019 and the successful integration of Unruly, and we explain these factors in more depth from p9 of our 22 September report. Today’s announcement also marks the second upgrade to our Tremor forecasts since COVID-19 impacted the advertising market and Tremor in Q2, and this reflects that Tremor has adopted a prudent approach to its guidance. Applying a similar approach to our estimates, we conservatively do not change our FY21 forecasts, and this means that we continue to forecast FY21 organic revenue growth to $420m or +20% YoY, with organic EBITDA growth to $55m or +67% YoY. This conservative, strong FY21 organic growth means that Tremor looks substantially undervalued on 7x FY20 EV/EBITDA or 5x NTM, and a NTM EFCF yield of 6%; vs peers on 13-19x EV/EBITDA with NTM EBITDA growth of 18-47%, and EFCF yields of 1-2%.
Companies: Tremor International Ltd.