Expanding on the Home front

Future 7 July 2017 Update
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Future

Expanding on the Home front

Acquisition

Media

7 July 2017

Price

249p

Market cap

£91m

Net debt (£m) at 31 March 2017

5.2

Shares in issue

36.6m

Free float

67%

Code

FUTR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.8

38.9

81.9

Rel (local)

6.1

38.0

57.5

52-week high/low

266.5p

122.6p

Business description

Future is an international media group and leading digital publisher. It operates two separately managed brand-led divisions: Media and Magazine.

Next events

Acquisition completion

estimated 31 July 2017

Final results

November 2017

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

Future is a research client of Edison Investment Research Limited

Future has announced the acquisition of the Home Interest division of Centaur Media, part-funded by a placing of £22m at 250p. The purchase, for a net cash consideration of £30.24m, adds a strong new vertical with good margins and attractive cash flow. Future should be able to drive additional value by adding e-commerce capabilities and internationalising the brands, further boosting the earnings enhancement. Our numbers will be formally updated when the deal completes (estimated to be at the end of July), but provisionally we would expect to be showing a small uplift in EPS in FY17e and around 10% in FY18e, highlighting the attractive rating.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/15

59.8

0.2

2.7

0.0

92.2

0.0

09/16

59.0

1.6

5.7

0.0

43.7

0.0

09/17e

76.5

7.2

16.4

0.0

15.2

0.0

09/18e

77.5

10.5

22.0

0.0

11.3

0.0

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

Attractive brands, margins and cash flow

For Future, the attractions of the Home Interest portfolio are clear. Importantly, the business is profitable and growing – revenue CAGR +7% over the last three years, net contribution margin of 38% in FY16 (FY15: 37%). There are well-recognised brands, led by Home Building & Renovating (market leader in the self-build and renovation space), with an established events portfolio. Exhibitions generated around half of the Home Interest revenues of £12.8m in 2016. Margins are inherently higher than for publishing, while the working capital profile benefits from forward bookings. The Home Interest audience has many similar characteristics to other group markets, not least loyalty and enthusiasm, opening up e-commerce opportunities using Future’s platform and expertise.

Earnings enhancing

The purchase price, at an EV of £32.0m, represents 2.5x historical (2016) revenues and 8.2x pro-forma historical EBITDA. The balance of the consideration beyond the placing proceeds will be debt-funded, with additional borrowing at similar terms to existing arrangements. Completion is subject to Centaur shareholders’ approval, scheduled by end July. There will therefore only be two months of consolidated trading for the enlarged group. August is naturally quiet, but September sees the London HB&R show taking place. Management guidance is that the deal should be “materially” earnings enhancing in the first full year of ownership, ie FY18.

Valuation: Remains attractive

Future’s investment case is centred on combined organic and acquisition growth. This deal fits well with the strategy and management is building a lengthening record of successful integration. The pace of group earnings’ growth is well ahead of that forecast for the market and the sector, making the rating attractive.

Adding content to the platform

Future has set out its stall as a global platform business meeting the needs and enthusiasms of special interest communities. These themes are addressed through a series of brands, well recognised in their niches and which allow for an increasingly diversified set of revenue streams. This strategy is already paying off across the brand portfolio, with strong H117 results leading to upgrades (see our note from May 2017). There is no change to underlying forecasts at this juncture.

The common platform that the group has developed allows further sectors and associated brands to be added with little additional overhead.

What are they getting?

Home Interest consists of three brands:

Homebuilding & Renovating: the market leader in the self-build and renovation sector. Consists of national and regional exhibitions, the UK’s best-selling self-build magazine and digital workflow tools. Revenue of £9.7m, split by approximately two-thirds from exhibitions and one-third from print. It ran seven events in 2016, with 94,000 visitors and 1,700 exhibitors. This aspect has been growing very strongly, with revenues ahead 20% in 2015 and 9% in 2016, on visitor growth of 6%. The exhibition margin was 56% in 2016. The largest shows are in Birmingham in March (launched 1994) and in London in September (launched 2005).

Period Living: a magazine and website focused on the specialist period living sector. Revenues of approximately £1.5m.

Real Homes: a magazine and website aimed at people with active home improvement and extension projects. Revenues of approximately £1.5m.

The division employs 68 people and is based in Bromsgrove in the West Midlands.

In the year to December 2016, Home Interest generated revenues of £12.8m and pro-forma EBITDA of £3.9m (assuming that it costs Future £1.0m to substitute the support functions previously provided by Centaur). The net contribution was 14% ahead of the prior year.

What are they paying?

Future is paying an enterprise value of £32.0m, on the assumption of taking on £1.75m of debt/ debt-like items. There will obviously be adjustments for working capital and tax, depending on the timing of completion. This represents a multiple of 2.5x CY16 revenues and 8.2x adjusted EBITDA.

An accelerated book build has raised gross proceeds of £22.0m at 250p. The balance of the purchase price, plus the associated transaction costs, will be funded by a new banking facility of £12.0m with HSBC (on the same terms as the existing revolving credit facility), along with using existing facilities. Net debt at the half year to March was £5.2m and our model anticipates that the sum will fall to £4.1m by the year-end.

This suggests that there may be a marginal uplift to earnings for the remainder of the current financial year with a larger upwards revision in FY18e, without any additional benefit from synergies or developing the Home Interest business.

The CEO, CFO, chairman and deputy chairman have all subscribed for placing shares.

How can it be developed?

Not having been at the heart of the core business focus at Centaur, the Home Interest division has nevertheless grown well, despite not being fully exploited. The success that Future has had to date in building online global brands out from its home markets and diversifying its income streams, suggests that it will be able to repeat this objective for these new brands. The business being bought is very much UK-focused and there is good potential for it to be opened out to other territories. In particular, there are very obvious opportunities to develop the e-commerce aspects, as consumers look to move ahead with their building projects.

How does the group look on a combined basis?

On rough pro-forma figures, not adjusted for the different year-ends but a simple addition of financial results for the respective FY16s, indicate revenue increasing from £59.5m to £71.8m and EBITDA from £5.2m to £9.1m.

Media revenues would increase to 45% of the whole (from 41%), diluting magazine revenues to 55%.

Adding Future’s current EV of £96.3m to the purchase EV of £32.0m gives a combined enterprise value of £128.3m, which equates to 1.8x pro-forma 2016 revenues and an EBITDA multiple of 14.1x. These multiples are now very historical (September year-end) and the anticipated growth in FY17e will bring them in to attractive levels.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017e

2018e

Year end 30 September

IFRS

IFRS

IFRS

IFRS

IRFS

IRFS

INCOME STATEMENT

Revenue

 

 

82.6

66.0

59.8

59.0

76.5

77.5

Cost of Sales

(58.5)

(50.6)

(40.6)

(37.2)

(47.2)

(46.5)

Gross Profit

24.1

15.4

19.2

21.8

29.3

31.0

EBITDA

 

 

(0.6)

(7.0)

3.6

4.7

9.5

12.6

Operating profit (before except.)

 

 

(3.4)

(10.3)

0.8

2.3

7.0

10.1

Amortisation

(2.0)

(2.3)

(2.3)

(2.0)

(2.1)

(2.1)

Exceptionals

2.6

(24.3)

(2.5)

(16.5)

(2.5)

(1.0)

Share-based payments

(0.3)

(0.1)

0.0

0.0

(1.0)

(2.5)

Reported operating profit

(3.1)

(37.0)

(4.0)

(16.2)

1.4

4.5

Net Interest

(1.4)

(0.8)

(0.6)

(0.7)

(1.0)

(0.7)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

Profit before tax (norm)

 

 

(4.8)

(11.1)

0.2

1.6

7.2

10.5

Profit before tax (reported)

 

 

(4.2)

(35.4)

(2.3)

(14.9)

1.6

4.9

Reported tax

(0.1)

0.5

0.3

0.5

(0.2)

(2.2)

Profit after tax (norm)

(4.9)

(10.6)

0.5

2.1

6.2

8.6

Profit after tax (reported)

(4.3)

(34.9)

(2.0)

(14.4)

1.5

2.7

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.7

0.2

0.0

0.0

Net income (normalised)

(4.9)

(10.6)

0.6

1.4

6.2

8.6

Net income (reported)

(4.3)

(34.9)

(1.3)

(14.2)

1.5

2.7

Basic average number of shares outstanding (m)

22

22

22

24

36

37

EPS - basic normalised (p)

 

 

(22.2)

(47.9)

2.7

5.9

17.4

23.3

EPS - normalised (p)

 

 

(21.7)

(47.5)

2.7

5.7

16.4

22.0

EPS - basic reported (p)

 

 

(19.4)

(157.4)

(5.9)

(58.7)

4.1

7.4

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

Revenue growth (%)

N/A

(20.1)

(9.4)

(1.3)

29.7

1.3

Gross margin (%)

29.2

23.3

32.1

37.0

38.3

40.0

EBITDA margin (%)

(0.7)

(10.6)

6.0

8.0

12.5

16.3

Normalised operating margin (%)

(4.1)

(15.6)

1.3

3.9

9.2

13.1

BALANCE SHEET

Fixed assets

 

 

92.7

45.9

44.9

38.6

61.4

61.4

Intangible assets

89.8

44.4

43.8

33.2

58.8

58.8

Tangible assets

2.5

1.0

0.6

3.0

0.9

0.9

Investments & other

0.4

0.5

0.5

2.4

1.7

1.7

Current assets

 

 

28.3

22.9

19.5

15.8

20.6

21.8

Stocks

1.9

0.6

0.5

0.4

0.3

0.3

Debtors

21.4

12.8

15.3

12.4

16.2

16.3

Cash & cash equivalents

4.6

7.5

2.5

2.9

3.9

5.1

Other

0.4

2.0

1.2

0.1

0.1

0.1

Current liabilities

 

 

(44.2)

(27.1)

(25.9)

(25.1)

(29.6)

(29.9)

Creditors

(31.6)

(25.9)

(20.7)

(21.4)

(27.5)

(27.8)

Tax and social security

(0.9)

(1.2)

(0.9)

(1.4)

(1.4)

(1.4)

Short-term borrowings

(11.5)

0.0

(4.3)

(2.3)

(0.6)

(0.6)

Other

(0.2)

0.0

0.0

0.0

(0.1)

(0.1)

Long-term liabilities

 

 

(9.4)

(9.1)

(7.1)

(5.6)

(15.1)

(10.2)

Long-term borrowings

0.0

0.0

0.0

(0.1)

(9.5)

(4.6)

Other long-term liabilities

(9.4)

(9.1)

(7.1)

(5.5)

(5.6)

(5.6)

Net assets

 

 

67.4

32.6

31.4

23.7

37.3

43.1

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

67.4

32.6

31.4

23.7

37.3

43.1

CASH FLOW

Operating cash flow before WC and tax

0.6

(31.6)

0.8

1.5

8.3

9.7

Working capital

(0.7)

7.7

(8.0)

1.6

(2.3)

(0.3)

Exceptional & other

(2.4)

22.4

(0.4)

(0.3)

(2.0)

(1.0)

Tax

1.5

(1.5)

(0.5)

(0.8)

(0.2)

(2.2)

Net operating cash flow

 

 

(1.0)

(3.0)

(8.1)

2.0

3.9

6.2

Capex

(2.9)

(2.6)

(2.0)

(2.5)

(2.0)

(2.0)

Acquisitions/disposals

9.2

21.3

1.3

(0.3)

(20.0)

0.0

Net interest

(1.4)

(0.8)

(0.6)

(0.4)

(1.0)

(0.7)

Equity financing

0.0

0.0

0.0

3.1

14.2

0.0

Dividends

0.0

(0.7)

0.0

0.0

0.0

0.0

Other

(0.1)

0.0

0.0

0.2

0.2

0.0

Net cash flow

3.8

14.2

(9.4)

2.1

(4.7)

3.5

Opening net debt/(cash)

 

 

10.6

6.9

(7.5)

1.8

(0.5)

4.1

FX

(0.1)

0.2

0.1

0.2

0.1

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

6.9

(7.5)

1.8

(0.5)

4.1

0.5

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Future and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Future and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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