All systems go

Future 23 November 2018 Update
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Future

All systems go

Full year figures

Media

 

23 November 2018

Price

483p

Market cap

£393m

Net debt (£m) end September 2018

17.8

Shares in issue

81.4m

Free float

99.7%

Code

FUTR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.0

15.0

61.5

Rel (local)

10.4

25.6

72.6

52-week high/low

516.0p

297.7p

Business description

Future is a global platform business for specialist media with diversified revenue streams.

Next events

AGM

February 2019

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5740

Future is a research client of Edison Investment Research Limited

Future has delivered a very good set of FY18 numbers – better than the upgrades put in place with the September update. This came through both the acquisitions and the organic growth as the group leverages its platform, with Media showing organic growth of 40%. There is plenty still to go for and we have again raised our FY19 expectations and published indicative FY20e forecasts. The group now has scale in the important US market, accounting for nearly half of group revenues on a pro-forma basis. In our view, the valuation does not reflect the premium growth or expanding margins.

Year end

Revenue (£m)

PBT* (£m)

EPS* (p)

DPS (p)

P/E (x)

EV/EBITDA (x)

Yield (%)

09/17

84.4

8.3

17.5

0.0

27.6

37.1

0.0

09/18

124.6

17.4

24.0

0.5

20.1

19.7

0.1

09/19e

176.0

29.3

26.9

2.0

17.9

12.1

0.4

09/20e

179.0

32.4

30.4

3.0

15.9

11.5

0.6

Note: *PBT and EPS are normalised, diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strong organic growth supplements acquisitions

Corporate activity played a significant role in FY18, with NewBay Media (April, £9.9m) and the larger Purch consumer deal (September, £99.1m), as well as the purchase of titles from Haymarket (£10.7m) and Next Media in Australia. The combined cost represented 1.2x the combined revenues. The first two have provided a major step up for Future in the US, with NewBay further broadening revenue streams in the B2B market. Management has built a strong reputation for integrating acquired businesses on time and on budget. This pace of activity should not overshadow the organic progress. This was 40% in the Media division (total revenue up 88%), now over half of the group. UK organic growth was 6% (including most of Magazines), whereas the US posted organic progress of 28%. EBITDA margins also expanded as the mix moved further to Media, growing from 13.0% to 16.6% (adjusted basis). We model further growth in FY19e and FY20e with full years of the acquisitions, more high-margin eCommerce revenue and a leveraging of the tech platform.

Cash flowing

Cash conversion in FY18 was 96% and the group’s ongoing capital requirements are relatively modest. September’s rights issue ensured the balance sheet stayed robust and net debt at the year-end was £17.8m; gearing of 10% and 0.8x FY18 EBITDA. Our model indicates the group returning to near net cash by end FY19e, bar further corporate activity.

Valuation: Plenty still in the tank

At 483p, Future’s shares are trading at around par to our blended peer set on an EV/EBITDA basis for FY19e, despite the considerable premium in the 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 an indicative valuation of 607p, 24% ahead of the current market level.

Strong FY18 warrants further upgrades

We upgraded our estimates with the year-end trading update in September (see note) and firmed up our forecasts including the Purch acquisition. The published FY18 EBITDA is 4% ahead of our September forecast, but the interest charge and (notably) the tax rate were also below the levels we had anticipated, hence a larger revision of our EPS number.

Given the way the business is developing and the speed of the improvement in the US, particularly in eCommerce and digital advertising, we have again lifted our forecasts for FY19e as shown below, and initiated forecasts for FY20e, which may well prove conservative. The current trading and outlook statement indicates that FY19 has started strongly and that Home Interest has now established itself as a ‘material operating vertical’. The Purch integration is expecting to be largely completed by the start of Q2 in the new year.

Exhibit 1: Summary forecast changes

EPS

PBT

EBITDA

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2018

19.9

24.0

+21

15.5

17.4

+12

20.0

20.7

+4

2019e

24.8

26.9

+8

27.3

29.3

+7

31.8

33.8

+6

2020e

-

30.4

N/A

-

32.4

N/A

-

35.4

N/A

Source: Company accounts, Edison Investment Research

Media power

Exhibit 2: Media segment components’ growth

Source: Company accounts, Edison Investment Research

The growth in the underlying segments is shown above. Although this includes the benefit of acquisitions, we would anticipate there is more to come, particularly as average revenue per user rises in the US market. This would be both in the digital advertising yields and in the eCommerce revenues generated, with greater potential for expansion in the US.

In Magazines, the underlying revenue decline was 8%, broadly in line with what we had anticipated, with the acquisitions lifting the overall revenue to an increase of 20%. The US magazine portfolio has been rationalised to focus on the brands with the most potential traction.

Exhibit 3: Financial summary

£'m

2016

2017

2018

2019e

2020e

30 September

IFRS

IRFS

IRFS

IRFS

IRFS

INCOME STATEMENT

Revenue

 

 

59.0

84.4

124.6

176.0

179.0

Cost of Sales

(16.0)

(50.5)

(69.3)

(88.0)

(87.0)

Gross Profit

43.0

33.9

55.3

88.0

91.9

EBITDA

 

 

5.2

11.0

20.7

33.8

35.4

Operating Profit (before amort. and except.)

 

2.8

8.9

18.5

30.8

32.4

Amortisation on acquired intangibles

0.0

(2.3)

(5.7)

(14.8)

(14.8)

Exceptionals

(16.5)

(3.7)

(4.4)

(1.5)

(1.5)

Share-based payments

(0.5)

(2.1)

(3.1)

(4.0)

(4.0)

Reported operating profit

(14.2)

0.8

5.3

10.5

12.1

Net Interest

(0.5)

(0.6)

(1.1)

(1.5)

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

2.3

8.3

17.4

29.3

32.4

Profit Before Tax (reported)

 

 

(14.9)

0.2

4.2

9.0

12.1

Reported tax

0.5

1.4

(1.5)

(1.7)

0.0

Profit after tax (norm)

2.3

8.6

14.9

23.7

26.0

Profit after tax (reported)

(14.4)

1.6

2.7

7.3

12.1

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.2

0.0

0.0

0.0

0.0

Net income (normalised)

2.3

8.6

14.9

23.7

26.0

Net income (reported)

(14.2)

1.6

2.7

7.3

12.1

Average Number of Shares Outstanding (m)

32

45

56.9

82

83

EPS - basic normalised (p)

 

 

7.1

19.0

26.2

28.9

32.6

EPS - normalised, diluted (p)

 

 

6.9

17.5

24.0

26.9

30.4

EPS - basic reported (p)

 

 

(43.9)

3.5

5.1

8.8

13.7

Dividend per share (p)

0.0

0.0

0.5

2.0

3.0

Revenue growth (%)

(1.3)

43.1

47.6

41.3

1.7

Gross margin (%)

72.9

40.2

44.4

50.0

51.4

EBITDA margin (%)

8.8

13.0

16.6

19.2

19.8

Normalised operating margin (%)

4.7

10.5

14.8

17.5

18.1

BALANCE SHEET

Fixed assets

 

 

36.1

97.9

210.6

195.4

195.5

Intangible assets

33.2

92.3

203.4

188.1

189.3

Tangible assets

0.5

1.0

1.7

1.8

0.7

Investments & other

2.4

4.4

5.3

5.3

5.3

Current assets

 

 

15.8

24.5

44.1

65.0

85.3

Stocks

0.4

0.7

0.0

0.0

0.0

Debtors

12.4

13.6

37.6

44.1

44.9

Cash & cash equivalents

2.9

10.1

6.4

20.7

40.4

Other

0.1

0.1

0.1

0.1

0.1

Current liabilities

 

 

(25.1)

(36.4)

(58.0)

(57.7)

(58.7)

Creditors

(21.4)

(29.9)

(48.4)

(49.4)

(50.4)

Tax and social security

(1.4)

(3.2)

(1.1)

(1.1)

(1.1)

Short-term borrowings

(2.3)

(3.2)

(8.5)

(7.2)

(7.2)

Other

0.0

(0.1)

0.0

0.0

0.0

Long-term liabilities

 

 

(5.6)

(24.7)

(24.1)

(17.4)

(11.7)

Long-term borrowings

(0.1)

(16.9)

(15.7)

(12.3)

(8.9)

Other long-term liabilities

(5.5)

(7.8)

(8.4)

(5.1)

(2.8)

Net assets

 

 

21.2

61.3

172.6

185.3

210.5

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

21.2

61.3

172.6

185.3

210.5

CASH FLOW

Operating cash flow before WC and tax

5.2

11.0

20.7

33.8

35.4

Working capital

(2.1)

4.7

(1.4)

(5.6)

0.3

Exceptional & other

0.0

(3.7)

(4.9)

(1.5)

(1.5)

Tax

(0.7)

(1.4)

(4.6)

(5.0)

(5.0)

Net operating cash flow

 

 

2.4

10.6

9.8

21.7

29.1

Capex

(2.5)

(2.6)

(2.6)

(2.6)

(2.6)

Acquisitions/disposals

(0.3)

(31.8)

(119.6)

0.0

0.0

Net interest

(0.4)

(0.6)

(1.1)

(1.5)

(1.0)

Equity financing

3.1

21.0

102.3

0.0

0.0

Dividends

0.0

0.0

0.0

(1.0)

(2.5)

Other

(0.1)

0.2

2.7

0.0

0.0

Net cash flow

2.2

(3.2)

(8.5)

16.6

23.0

Opening net debt/(cash)

 

 

1.8

(0.5)

10.0

17.8

1.2

FX

0.1

0.0

0.7

0.0

0.0

Other non-cash movements

0.0

(7.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(0.5)

10.0

17.8

1.2

(21.9)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Future and prepared and issued by Edison, in consideration of a fee payable by Future. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Future and prepared and issued by Edison, in consideration of a fee payable by Future. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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