Entertainment One: Still A Discount To Peers
Edison | Nov 21, 2013 02:49AM ET
Continuing to deliver
Interim results were slightly ahead of our estimates with normalised EBITDA more than doubling to £28.4m, helped by the successful integration of Alliance. With around two thirds of profit arising in H2 our full-year forecasts are unchanged, but the results reinforce our confidence in ability to benefit from strong demand for entertainment content and economies of scale and to maximise its return on investment. The rating remains at a discount to the peers and our 286p DCF value, and is underpinned by the library, which we value at c $800m (£500m).
Interim normalised PBT of £21.2m (H113: £8.8m)
Interim results were impressive, despite the comparative period being slightly weak due to the timing of releases. Pro forma (like-for-like) revenue increased by 8% and normalised EBITDA by 43%, helped by synergies from the acquisition of Alliance. Highlights included a 76% increase in like-for-like Film EBITDA to £20.9m, digital revenues more than doubling to account for 20% of the group total and Television EBITDA ahead of our estimate. Our full-year forecasts are unchanged from those detailed in our Review dated 11 October.
Continuing to scale up
eOne is continuing to invest heavily, with H1 spend on productions and acquired content rights more than doubling, to £163.8m. Demand for content remains very strong, especially from digital channels, and eOne is slightly extending its footprint across the value chain, leveraging its infrastructure by a modest investment in film production and looking to acquire a broader spread of licensing rights. However, its broad spread of product and geographies means it remains a very low risk business model, and indeed the growing proportion of television shows now moving into fourth and fifth seasons will further improve returns by opening up new syndication and international markets.
Valuation: Still at a discount to peers
eOne continues to deliver on expectations and the interim results confirm the transformational nature of the Alliance acquisition. The recent move to the FTSE 250 has drawn it to the attention of a wider investor audience, together with the intention to commence dividend payments in 2014. Strong organic growth prospects may be augmented by acquisitions at some stage, to further extend its geographic reach. The FY14e EV/EBITDA is still at a material discount to the peer group and points to the upper end of the 273-286p range we published in October.
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