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Good pipeline into FY21 and beyond

Mondo TV 24 November 2020 Update
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Mondo TV

Good pipeline into FY21 and beyond

Q3 figures

Media

24 November 2020

Price

€1.48

Market cap

€54m

Net debt (€m) at 30 September

5.7

Shares in issue

36.4m

Free float

62%

Code

MTVI

Primary exchange

Borsa Italiana Star

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.7)

(19.8)

17.0

Rel (local)

(17.7)

(26.8)

25.6

52-week high/low

€2.70

€1.11

Business description

Mondo TV is a global media group with a focus on the production, acquisition and monetisation of animated children’s television series. Headquartered in Rome, it also holds controlling stakes in listed subsidiaries Mondo TV France (21%), Mondo TV Suisse (56%) and Mondo TV Iberoamerica (79%). It owns the rights to over 1,600 TV episodes and films, which it distributes across 75 markets. In total, 74% of revenues are generated in Asia, with the remainder from Europe and South America.

Next events

Final results

March 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Mondo TV is a research client of Edison Investment Research Limited

Mondo TV continues to report production, distribution and licensing deals that will drive its future revenue and profits, supported by the €10.5m funding agreed with Atlas Special Opportunities. Q3 figures show broadly flat revenues for the year-to-date, with nine-month EBITDA margins up from 71.4% to 74.7%, reflecting reduced operating costs. We have pulled our full year revenue estimate back by 14% to reflect lower growth than we originally expected, translating to a reduction of just 4% at EBITDA level due to the margin uplift. The shares remain valued at a discount to peers.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

EV/EBIT
(x)

P/E
(x)

12/18

18.9

(30.1)

(56.3)

0.0

N/A

N/A

12/19

23.1

6.2

11.3

0.0

6.4

13.1

12/20e

24.5

7.0

11.7

0.0

5.0

11.8

12/21e

28.0

8.7

13.9

0.0

4.2

10.6

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

Deal flow continues

Our May and September notes ran through deals struck in the earlier parts of the year. During Q3, Mondo TV Iberoamerica (79% owned) confirmed co-production of Annie & Carola with RTVE, to be made at the Canary Islands studio and consisting of 52 11-minute episodes in high-definition 2D, scheduled for release in H222. Mondo and Toon2Tango have teamed up with ZDF to co-produce a new 3D/CGI series Grisù (52 11-minute episodes), based on the classic Italian property, also scheduled for delivery H222. ZDF will handle distribution outside Italy, Spain, France and China. In a broader licensing approach taking on representation of third-party brands, Mondo has recently added character and lifestyle brand Phat Kandi in Spain and Portugal to add to its portfolio that includes The Gruffalo and Feisty Pets.

Atlas funding coming through

The 42 convertible bonds issued to Atlas (see our September update note for details) have started to be converted, with the first tranche of 25 bonds issued in October, alongside 1.5m warrants. The warrants give the right to subscribe to Mondo shares on a one-for-one basis over a five-year period at €3, well ahead of the current price. At the time of writing, 10 of this first tranche have been converted, at prices of
€1.30–1.31. As with the previous bonds, there is dilution for existing shareholders. However, it gives management the confidence to take up opportunities, such as the projects with Toon2Tango and the 3D CGI animation production suite in the Canary Islands, putting the group in a stronger longer-term position.

Valuation: Discount persists

Mondo’s valuation discount to global peers has widened, with the drift in the share price from a high of €2.26 in June. Parity on averaged earnings multiples across FY19–21e would imply a value of €3.27/share (Sept: €3.43). A DCF (WACC of 11.5%, terminal growth 2%) suggests a price of €2.19 (Sept: €2.22). The mid-point of these is €2.73 (Sept: €2.83). We would expect Mondo’s valuation discount to start to close as the financial benefit of recent deals flows through to revenues.

Q3 summary results

Results for Q320 and the first nine months of 2020 (9M20) are shown below, demonstrating a resilient year-to-date revenue performance, down just 1% on the prior year, and an improvement in EBITDA of 3%. EBITDA margin was up from 71.4% in 9M19 to 74.7% in 9M20, with Q320 margin coming in at 76.9%.

Exhibit 1: H120 Mondo TV Group results summary

€m

H120

% change on H119

Q320

% change on Q319

9M20

% change
9M20 on 9M19

Revenue

11.2

+2

5.2

-8

16.4

-1

Capitalised content development

1.7

-3

1.2

+44

3.0

-12

Production value

12.9

+1

6.5

-1

19.4

+1

Operating costs

(4.6)

-8

(2.5)

+5

(7.1)

-3

EBITDA

8.3

+7

4.0

-4

12.3

+3

D&A (including exceptionals)

(4.7)

+6

(2.6)

-2

(7.3)

+3

EBIT

3.6

+9

1.4

-8

5.0

+4

Net financial costs

(0.2)

+131

(0.1)

-43

(0.2)

+25

PBT

3.4

+6

1.4

-5

4.8

+3

Tax

(1.2)

+1

(0.4)

-35

(1.6)

-11

Minorities

0.2

0.0

0.4

Net profit

2.5

+22

1.1

+16

3.6

+16

Source: Mondo TV accounts, Edison Investment Research. Note: May not tally due to rounding.

Adjustments to forecasts

Management publishes five-year business plans to which we refer when building out our forecast model, while incorporating a degree of contingency. FY20 has not panned out as originally expected due to the pandemic. However, the disruption for Mondo has been manageable, with a relatively straightforward transition to remote working and little disruption to production in the Canary Islands. The more noticeable change has been on the way that the industry does business, with the major industry trade and licensing fairs having to transition to a virtual basis. The high need for content from broadcasters and streaming platforms, preferably fresh and of high quality, has made sure that deal-making has continued.

Exhibit 2: Adjustments to forecasts

EPS (c)

PBT (€m)

EBITDA (€m)

Revenue (€m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2020e

14.1

11.7

-17

8.5

7.0

-18

20.0

18.0

-10

28.6

24.5

-14

2021e

14.6

13.9

-5

9.2

8.7

-5

23.2

22.0

-5

32.0

28.0

-13

Source: Mondo TV accounts, Edison Investment Research

We have revisited our estimates considering the year-to-date figures and made adjustments, bringing back the top-line forecast from €28.6m to €24.5m for FY20, while upping the margins to reflect the lower operating costs in 9M20, as shown in the exhibit above. This results in a smaller reduction in EBITDA. Some of the advantage on the cost front may reverse once travel restrictions are lifted and the round of trade fairs recommences, although even these may be a partial hybrid of physical and virtual events.

We have also made an increase in our estimate of the capital investment for FY20 from €11.1m to €14.5m, as this was looking light on a run-rate basis, after a spend of €10.8m in the first nine months. The shape of the balance sheet by the year-end will obviously reflect the issue, timing and conversion of the Atlas convertible bonds. In all, our revised forecast currently projects year-end net cash of €1.3m (was €3.0m).

Valuation

Since we last published in September, there has been continuing divergence in share price performance between Mondo TV and the global peer group of content and related licensing companies. Mondo TV’s share price has drifted back from €1.73 to €1.48, while stocks such as Mediawan (which has accelerated its plans to build a major European content provider, and despite a relatively heavy impact from coronavirus operating restrictions) and Toei (benefiting from increasing global interest in anime) are ahead over the year to date.

Exhibit 3: Peer group summary valuation ratings

Name

Share price

Market cap (m)

Ytd perf (%)

P/E
last (x)

P/E
1FY (x)

P/E
2FY (x)

EV/
Sales last (x)

EV/
EBITDA last (x)

EV/
EBITDA 1FY (x)

EV/ EBITDA 2FY (x)

EV/
EBIT last (x)

EV/
EBIT 1FY (x)

EV/
EBIT 2FY (x)

Div yield 1FY (x)

Xilam Animation (€)

44.10

217

-0.7

31.3

67.5

23.7

7.9

8.5

11.9

5.1

26.5

46.6

18.5

0.0

Mediawan (€)

11.50

389

10.2

15.1

26.1

12.9

1.9

12.1

16.7

10.3

15.2

18.2

12.1

0.0

Lions Gate Ent (US$)

81.60

1,997

-11.0

1.2

10.3

10.2

10.3

46.6

29.4

0.0

Toei (¥)

6,910.00

290,220

23.4

24.7

27.4

26.4

4.6

15.0

16.3

15.3

0.9

Corus Ent (CA$)

4.09

838

-23.1

5.5

5.6

5.4

1.7

5.1

5.1

5.1

7.5

7.9

7.3

5.9

Spin Master (US$)

22.90

3,064

-24.3

25.4

46.8

21.9

1.4

10.1

13.3

8.9

15.6

40.8

15.2

0.0

Amuse (¥)

2,652.00

49,390

-11.9

15.3

28.0

20.4

0.4

5.7

4.6

1.3

Average

-5.3

19.6

33.6

18.5

2.7

10.2

11.3

8.5

16.2

32.0

16.5

1.2

Median

-11.0

20.0

27.7

21.2

1.7

10.2

11.9

8.9

15.4

18.0

15.2

0.0

Mondo TV (€)

1.48

56

-38

13.1

12.7

10.6

1.8

2.5

2.3

1.9

6.4

5.6

4.4

0.0

Discount to median

34%

54%

50%

-6%

75%

81%

79%

58%

79%

71%

Source: Refinitiv, Edison Investment Research. Note: Priced at 19 November 2020.

With the revisions to our forecasts, the implied share price for Mondo TV to reach parity on averaged P/E and EV/EBIT multiples across FY19–21e is now €3.27/share from €3.43 in September. We would expect Mondo’s valuation discount to start to close as the financial benefit of recent deals flows through to the revenue line.

Exhibit 4: Financial summary

€m

2017

2018

2019

2020e

2021e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

32.0

18.9

23.1

24.5

28.0

Cost of Sales

(8.3)

(7.7)

(6.6)

(6.6)

(6.0)

Gross Profit

23.7

11.2

16.4

18.0

22.0

EBITDA

 

23.7

11.2

16.4

18.0

22.0

Operating Profit (before amort. and except.)

 

17.6

(30.6)

6.5

7.4

9.5

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

(23.9)

(0.2)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

Reported operating profit

17.6

(54.5)

6.3

7.4

9.5

Net Interest

(2.2)

0.5

(0.3)

(0.4)

(0.9)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

15.4

(30.1)

6.2

7.0

8.7

Profit Before Tax (reported)

 

15.4

(54.0)

6.0

7.0

8.7

Reported tax

(3.1)

11.5

(2.1)

(2.2)

(2.7)

Profit After Tax (norm)

12.3

(22.0)

4.1

5.0

6.2

Profit After Tax (reported)

12.3

(42.5)

3.9

4.8

6.0

Minority interests

0.5

3.0

(0.1)

(0.7)

(1.0)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

12.8

(19.0)

4.0

4.3

5.2

Net income (reported)

12.8

(39.5)

3.8

4.1

5.0

Average Number of Shares Outstanding (m)

30

34

35

37

38

EPS - normalised (c)

 

43.0

(56.3)

11.3

11.7

13.9

EPS - normalised fully diluted (c)

 

43.0

(56.3)

11.3

11.7

13.9

EPS - (c)

 

43.0

(117.0)

10.8

11.1

13.2

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Revenue growth (%)

16.8

(40.9)

21.9

6.4

14.0

Gross Margin (%)

74.0

59.2

71.3

73.2

78.7

EBITDA Margin (%)

74.0

59.2

71.3

73.2

78.7

Normalised Operating Margin

54.9

(162.0)

28.2

30.2

34.1

BALANCE SHEET

Fixed Assets

 

47.9

46.0

50.5

55.3

55.9

Intangible Assets

44.1

30.9

35.8

40.3

40.9

Tangible Assets

0.4

0.4

1.6

1.9

1.9

Investments & other

3.4

14.7

13.1

13.1

13.1

Current Assets

 

53.6

37.2

35.7

43.6

50.9

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

47.9

20.6

24.9

28.4

32.4

Cash & cash equivalents

2.4

12.5

8.0

12.3

15.7

Other

3.3

4.2

2.9

2.8

2.8

Current Liabilities

 

(22.6)

(25.2)

(19.9)

(23.6)

(26.0)

Creditors

(15.0)

(21.6)

(13.8)

(16.9)

(19.2)

Tax and social security

(0.4)

(0.5)

(0.8)

(1.2)

(1.2)

Short term borrowings

(3.6)

(3.0)

(5.3)

(5.5)

(5.5)

Other

(3.7)

(0.1)

(0.0)

(0.0)

(0.0)

Long Term Liabilities

 

(1.2)

(1.9)

(4.7)

(7.2)

(7.2)

Long term borrowings

(0.7)

(1.3)

(4.1)

(6.6)

(6.6)

Other long term liabilities

(0.5)

(0.6)

(0.6)

(0.6)

(0.6)

Net Assets

 

77.7

56.1

61.6

68.0

73.7

Minority interests

(0.6)

2.1

(1.2)

1.0

1.4

Shareholders' equity

 

77.1

58.2

60.4

69.0

75.1

CASH FLOW

Op Cash Flow before WC and tax

23.7

11.2

16.4

18.0

21.1

Working capital

(11.2)

6.0

(10.6)

(0.4)

(1.7)

Exceptional & other

(0.8)

(11.0)

1.4

0.0

0.0

Tax

(3.1)

11.5

(2.1)

(2.2)

(2.7)

Operating cash flow

 

8.7

17.6

5.1

15.4

16.8

Capex

(19.2)

(28.6)

(14.2)

(14.5)

(12.5)

Acquisitions/disposals

0.0

0.0

(0.1)

0.0

0.0

Net interest

(0.2)

0.0

2.9

(0.4)

(0.9)

Equity financing

9.4

20.9

1.8

2.5

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.1

0.0

0.0

0.0

0.0

Net Cash Flow

(1.2)

10.0

(4.5)

3.0

3.4

Opening net debt/(cash)

 

0.9

2.0

(8.0)

1.4

(1.3)

FX

0.1

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

(4.9)

(0.3)

0.0

Closing net debt/(cash)

 

2.0

(8.0)

1.4

(1.3)

(4.7)

Source: Company accounts, Edison Investment Research

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This report has been commissioned by Mondo TV and prepared and issued by Edison, in consideration of a fee payable by Mondo TV. 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.

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This report has been commissioned by Mondo TV and prepared and issued by Edison, in consideration of a fee payable by Mondo TV. 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.

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Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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