Technicolor is a worldwide technology leader operating in the media and entertainment industry. Its activities are organised in two business segments, Entertainment Services (the combined Production and DVD Services businesses) and Connected Home.
Technicolor has announced the appointment of Richard Moat as CEO, taking over from Frédéric Rose, who had been in situ for 11 years. He is a turnaround specialist, with a telecoms background, and is tasked with accelerating growth, value creation and financial sustainability. The Q3 trading update indicated improvements in adjusted EBITDA and free cash flow, as anticipated. We have made minor downward adjustments to our full year and FY20 forecasts to reflect the shift in mix. The valuation remains well below that of peers and our DCF-derived level of €2.10.
Connected Home operates in a large (FY18: $16.4bn) but tough market, with little growth, thin margins and limited visibility. Scale is key, giving access to cheaper components and leveraging platform development costs. The DVD market continues to decline, although increased market share has allowed some offset. A broad customer spread in Production Services ensures a high base workload, bolstered by the appetite for high-end content from VoD platforms and growth in VFX-heavy movies. Studios increasingly outsource animation and the strength of the gaming market is driving enhanced user experiences. The upcoming IPO of DNEG should draw attention to industry attractions.