Future has now completed its acquisition of Purch, fully funded by a successful rights issue. Trading results in the core Media business are ahead of earlier management expectations for FY18, helped by some strong product launches and World Cup-related campaigns. We have finessed our indicative forecasts, including Purch, and updated to reflect the trading update and adjusted historic EPS for the bonus element of the rights. There are clear opportunities to leverage the Purch assets, generating incremental growth, which we believe justify a higher rating.
At the time of the rights issue in July, we set out an indicative combined forecast income statement. For FY18e, this showed revenue of £114.6m and EBITDA of £18.4m. With the acquisition now completed (5 September), we have updated and formalised these numbers. The core trading uplift referred to in the pre-close statement is project specific to FY18e. We have raised our group revenue forecast to £118.6m, with a resulting 9% increase in EBITDA to £20.0m. For the following year, our revised revenue number of £167.0m is slightly lower than our initial estimate (£176.7m). This reflects three factors: a planned reduction in some less profitable business at Purch, other refining of the broader portfolio, and timing of an event that will now fall into FY20e. Our EBITDA projection for FY19e is unchanged at £31.8m. The historic EPS has now been adjusted to reflect the bonus elements of the rights, making the progression more evident.
Our July note described the Purch B2C business acquisition in some detail, outlining opportunities. In particular, Purch gives Future the scale needed to be a credible proposition to US advertisers in the attractive consumer technology market. Allied to the earlier acquisition of Newbay, the group now has a good revenue balance between the US and other markets, with a broad range of content and an attractive mix of different income streams.
At 449p, Future’s shares are trading at a discount of around 8% to our blended peer set on an EV/EBITDA basis for FY19e, despite the premium growth and expanding EBITDA margin. Looking at a DCF on unchanged assumptions of a conservative 7% medium-term, top-line growth and with the EBITDA margin growing to 23% (reflecting the shift in mix more towards Media), we derive a suggested valuation of 564p, 26% ahead of the current level.