Hardman & Co Insight: Streamed content takes over

The Great Correction of 2022 saw the share prices of streamers plunge after market leader Netflix reported a slowdown/fall in subscriber growth. Having formerly been seduced by hectic subscriber growth rates, investors quickly refocused, this time on fundamental metrics such as revenue, margins, profits and cashflow. Since then, streamers have continued to take a steadily greater share of viewing while linear TV continues to decline. But growth in streaming subscribers in the US and UK is now a

Disappointing Q3 advertising revenue and a weak outlook

ITV published a consensus-beating Q3 trading update but not from the division it should have come from, explaining the strongly negative share price reaction. Specifically, the growth came from ITV studios (which is better assessed over a longer time frame) while advertising revenue came in below expectations despite the Rugby World Cup (that propelled the revenue of the French peers notably). The outlook is weak due to a challenging environment for advertising while the guidance has been lowere

No total advertising revenue reversal in the very short-term

There was no surprise on the trend in the Q1 23. The decrease in total advertising revenue and ITV Studios on constant currency was compared to high comparatives last year. Total digital revenue surged by +29% including strong digital advertising growth (+30%). There is no reversal of total advertising revenue expected in Q2 23 (-12%). The 2023 guidance was confirmed for ITV Studios with mid-single digit revenue growth and an adjusted EBITA margin at the low end of 13-15% of revenue.

Initial Equity Trading Comments - 11 May 2023

Pressure on total advertising, growth for ITV Studios

FY2022 was in line with expectation. Total advertising revenue was down -1% and ITV Studios revenue increased by +19% o/w +14% organically. Digital revenue was up +18%. The lower adjusted EBITA margin (19% of revenue, -5pts) was due to higher content costs (+5%) and infrastructure and overhead costs (+9%) in Media & Entertainment. The start to 2023 has been challenging for total advertising revenue (-11% expected in Q1 23). Revenue growth and margin improvement are expected for ITV Studios in 20

Lower total advertising, growth at ITV Studios

In 9m 22, total advertising revenue decreased by 2% including a weak September 2022 (-14%). ITV Studios performed well with organic revenue up +13% in 9m 22. For 2022, total advertising revenue should decrease by -1/-1.5% given the broadcasting of the Football World Cup in Q4 22 and ITV Studios’ revenue should exceed the 2019 level. ITVX (AVOD/SVOD) is a key driver for digital revenue. The full launch of free content (>10,000 hours) is due on 8 December 2022.

Strong advertising and activities in studios

Q1 22 was strong in each division. Total advertising revenue increased by +16% as expected and digital advertising surged by +27%. ITV Studios revenue grew by +24% at constant currency thanks to strong deliveries of programmes. Total advertising revenue growth is expected to be +5% in H1 22 due to a tough comparative in Q2 22. ITV Studios benefits from the high demand for content and is confident on its performance in 2022. The launch of ITVX is confirmed for Q4 22.

Launch of the platform ITVX and higher content investments going forward

ITV had a strong 2021 year with total advertising revenue growth of +24% and studios revenue growth of +31% organically. The adjusted EBITA margin increased to 24% of revenue (+3pt). The advertising market has been strong since the start of the year 2022 according to ITV (+14% expected in January-April 2022). Conversely, the acceleration of the development of digital revenue (£750m by 2026) with the launch of ITVX implies higher content investments that should weigh on the operating margin in 20

Strong advertising and production activity

ITV had a strong performance in 9m21. It included strong total advertising revenue growth in Q3 21 (+32% vs -7% in Q3 20). The outlook is positive for Q4 21 with advertising revenue growth estimated at +11-13%. ITV Studios revenue growth (+32% in 9m21 vs +26% in H1 21) was driven by the delivery of programmes in the UK and international markets and higher revenue from streaming platforms. Q4 21 should benefit from the strong pipeline of programmes.

Recovery at ITV Studios, positive reversal in advertising in March

Q1 21 was characterised by opposing trends at ITV Studios and advertising. Revenue recovered at ITV Studios (+9%), while advertising decreased (-6%) due to a high comparative last year and continuing COVID-19 restrictions in the UK. Total advertising revenue turned favourably in March 2021 (+8%) and the positive trend was confirmed in April 2021 and until the end of H1 21 (+26% estimated vs -20% in H1 20).

Broadcast better than ITV Studios

In Q4 20, total advertising revenue turned positive (+3%). In 2020, based on a 16% decrease in revenue, the group’s adjusted EBITA (£573m, -21%) was above expectations and represented a margin rate of 21% of revenue (-1pt). ITV benefited from the reduction in programming costs and significant cost savings in both divisions. For 2021, total advertising revenue increased in March after two negative months. ITV Studios should continue to be impacted by COVID-19 restrictions and additional related c

Good in Broadcasting, less good in Production

In Q3 20, the decrease in total advertising revenue slowed significantly (-7% vs -43% in Q2 20, of which -42% in June). For Q4 20, ITV is expecting a slight increase yoy, assuming no prolongation of the containment into December. ITV Studios’ revenue dropped by 19% at constant currency in 9m19 (vs -17% in H1 20). The return to full capacity is challenging due to the second lockdown so that both revenue and the EBITA margin should be impacted in Q4 20.

Hit in advertising and production

Total advertising revenue dropped by 43% in Q2 20 and ITV Studios was affected by the stop in production. The adjusted EBITA margin collapsed to 14% of revenue (-8pts yoy) despite the reduction in the cost of programmes by £77m and overheads cost savings of £51m over £60m targeted in 2020. There is no guidance for Q3 20 and FY2020. The negative trend in advertising was reduced in July 2020 (-23%). ITV Studios restarted production in June 2020.

Q1 20 in line with expectations

In Q1 20, total advertising’s revenue (+2%) was in line with expectations and ITV Studios’ revenue (-10% organically) was impacted by the stopping of production since mid-March 2020. Advertising deteriorated in April 2020 (-42%) due to the lockdown and the cancellation of advertising campaigns. This may be a bottom considering the resumption of economic activity by the end of H1 20. ITV confirms cost savings, the reduction of capex and the cost of programmes.

High risk in TV advertising with the Coronavirus outbreak

In 2019, total advertising was better than expected and decreased by -1.5% (vs guidance of c.-2%). Lower group adjusted EBITA margin was attributable to Broadcasting, which had to support higher investments in the businesses, including the launch of BritBox UK, which were not completely offset by cost savings. The outlook for 2020 is uncertain due to the Coronavirus outbreak. Essentially, there should be a significant negative effect on TV advertising.

Topps Group (TPT LN) - Initiation: Market leader trading at cyclical lows

Topps Group is the UK’s largest specialist supplier and distributor of tiles and associated products to the UK’s domestic and commercial markets. Each of the last three years the Group has successfully achieved record revenue in a market that’s seen recent volume declines and regional peers enter administration. Following the right sizing of its business, Topps Group is now well positioned to capitalise on the economic recovery and continue taking share from competitors, supported by its global

HeiQ - Forecast update and Ecolab contract

HeiQ reported its interim results for the 12-months to December 2023, a period characterised by challenging conditions in the markets in which the company currently operates. In-line with the recent trading update, the company reported revenues of $41.7m for FY23 and closed the period with a cash balance of c$10m and a net debt position of $2.2m. We have updated our forecasts to reflect the FY23 results and HeiQ’s outlook in 2024, leaving our revenue forecast unchanged but adjusting gross margin

Morning Note – 24 April 2024

LIBERUM: Tortilla Mexican Grill: Prioritising profitability over roll-out

Hybridan Small Cap Feast - 24 April 24

24th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

PROGRESSIVE: Gear4music: FY24 trading in-line and debt reduction ahead of market expectations

At its FY23 results in June 2023, G4M announced its intention to focus on product margins, overhead cost reduction, and efficiency ahead of revenue growth, along with further net debt reduction, in FY24. The FY24 year-end trading update confirms G4M has delivered on these rebalanced priorities, with gross margin rising and net debt almost halving compared with FY23. Cost savings achieved in FY24 and the continued development of higher-margin categories should deliver further upside in FY25E.

LIBERUM: The Liberum Leisure Digest: NLW increase - pricing power is key

Pinewood Technologies (PINE LN) - Driving growth in automotive software

Pinewood’s transition to a pure-play automotive SaaS business is now largely complete. Today we introduce summary forecasts out to FY26 and reiterate the investment case. We see significant opportunity for Pinewood to grow its user base in the UK and internationally whilst generating high EBITDA margins and cash conversion. With a 24.5p special dividend embedded in the current price (payable Q1/Q2), the effective price today is 12.3p. Based on the Group’s FY27 target of £27m EBITDA, we estimate

PROGRESSIVE: Vertu Motors: Traction control

Vertu is the fourth largest automotive retailer in the UK, with 188 sales outlets and a track record of cross-cycle growth, principally through businesses it has acquired, funded by equity, debt and most importantly cash generation. Vertu operates across the entire vehicle lifecycle, including new and used vehicle sales, and vehicle servicing, repair and parts. Service and repair is a 40+% gross margin repeating business. With economic headwinds, the transition to electric vehicles, recent overs

Zeus Top Picks for 2024 - 2023 review and outlook for 2024

On 9 January last year, we set out our ten top stock picks for 2023, for what turned out to be another relatively poor twelve months for UK equities due to two wars, stubbornly high inflation and further tightening of monetary policy. This was even as other major markets, such as the US, largely recovered in the year. In the 2023 calendar year, the AIM All-Share index fell 8.2% and is still 42% off its 2021 high. From the release of our 2023 top picks note, the average total return (assuming div

AKA: Initiating Coverage of a.k.a. Brands with Buy and $14 PT: Upside Ahead

We are initiating coverage of a.k.a. Brands Holding Corp. ("a.k.a. Brands" or the "company"), a leading owner of primarily online apparel-based brands focused on Generation Z and Millennial consumers, with a Buy rating and $14.00 price target, or 10.9X our 2025 EBITDA projection of $20.2 million. The company's brands include: 1) Princess Polly, focusing on 15 to 25 year-old women; 2) Petal & Pup, which offers feminine styles for 25 to 34 year-old women; 3) Culture Kings, a street wear destinatio

Domino's Pizza - Growing the base

Domino’s Pizza Group’s (DOM’s) new CEO has set an ambitious long-term growth target, including an acceleration in its net store opening programme. With better alignment between the company and its franchisees, management believes DOM should be capable of generating improved profit growth, versus that achieved in recent years, and potential higher returns.

Borussia Dortmund - Helping itself

Borussia Dortmund’s progress to the semi-final of the Champions League brings a further upgrade to profit guidance for FY24. In addition to helping the financial results of the current year, the relative success of German teams against those of other nations in European competitions this season may ensure the club qualifies for the Champions League next season despite currently being outside the top four of the Bundesliga.

Hybridan Small Cap Feast - 17 April 24

17th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

HeiQ - Acquisition, placing and trading update

HeiQ has announced the acquisition of a site in Portugal where the company intends to build a HeiQ AeoniQ production facility with a 3,000 tonne per year capacity. To support the acquisition, the company intends to raise c£2.44m via an equity placing, supported by the issue of a c£1.7m (€1.97m) convertible loan note (largely to management) that will convert upon completion of the raise. We see this as an important step in the development programme for HeiQ AeoniQ. Additionally, HeiQ has provided