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Growing library in a content-hungry world

Mondo TV 19 November 2019 Update
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Mondo TV

Growing library in a content-hungry world

Q3 results

Media

19 November 2019

Price

€1.23

Market cap

€45m

Net debt (€m) at end September 2019, adjusted for IFRS 16

0.1

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

(2.5)

17.3

(37.0)

Rel (local)

(7.2)

1.9

(48.8)

52-week high/low

€2.22

€0.93

Business description

Mondo TV is a global media group with a focus on the production, acquisition and exploitation of animated children’s television series. Headquartered in Rome, it also holds controlling stakes in listed subsidiaries Mondo TV France (23%), Mondo TV Suisse (56%) and Mondo TV Iberoamerica (71%). It owns the rights to over 1,600 TV episodes and films, which it distributes across 75 markets. 83% of revenues are generated in Asia, with the remainder from Europe and South America.

Next events

Full year update

End March 2020

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

Mondo TV is a research client of Edison Investment Research Limited

Mondo TV’s Q3 results continued in the more positive vein established in H1, with the flow of new content and licensing agreements carrying through into Q4 across a good range of properties, including new titles in the German JV with Toon2Tango. In October, the group announced new licensing deals in Russia with Gazprom Media and PJSC MegaFon for the streaming of Mondo TV library content. These deals help rebalance group revenues, historically heavily biased to Asia. Management’s business plan for FY19–FY23 (to which we have built in a degree of contingency) is unchanged, as are our forecasts.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

EV/EBIT
(x)

P/E
(x)

12/17

32.0

15.4

43.0

0.0

1.1

2.9

12/18

18.9

(30.1)

(56.3)

0.0

N/A

N/A

12/19e

20.8

6.0

10.3

0.0

3.0

12.0

12/20e

27.8

7.8

12.8

0.0

2.3

9.6

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

Remains on business plan target trajectory

Group production value for the nine months to end September 2019 was €19.3m, 13% below the same period in FY18, a reducing percentage decline vs. H1, and well on track to meet management’s €24.5m FY19 business plan target. EBITDA of €11.9m compares with the full year target of €14.3m. The period-end net debt position of €0.1m includes IFRS 16 liabilities of €1.7m, with gross cash of €9.4m. There was no update on the outstanding dispute with the Italian tax authorities (see May update) or on negotiations with its Asian ex-customer New Information Tech.

Broadening the project range

In October, Mondo TV announced further cooperation with York Animation, a leading Chinese studio with which it worked on YooHoo to the Rescue (now airing on Netflix), Invention Story and Robot Trains, for four projects over three years, at an investment cost of $17m. It will be producing a third series of Robot Trains with CJ in Korea. Four further animation projects are lined up with Toon2Tango. The first joint project, Agent 203, is launched. Mondo TV is now licensing agent for The Gruffalo in Italy, Spain and Portugal and, as rights holder for Feisty Pets in those regions, has awarded publishing rights to PRH. Its unscripted live action web series, House of Talent, is in production and looks set to provide additional exploitation opportunities. Mondo TV has also taken a first step in the video games market with a €90k investment in a UK developer.

Valuation: Marked discount to peers and DCF

Mondo TV’s shares trade at a substantial discount to global peers. Parity on EV/EBIT would indicate a value of €2.46/share and on P/E €1.82/share. EV/EBIT peer multiples have reduced and P/Es have slightly risen since our September note. A DCF (WACC of 11.5%, terminal growth 2%) suggests a price of €2.02. The average of the three values is €2.10 (€2.22 in September), well ahead of the current price.

On track to meet full year guidance

The Q3 report shows figures broadly in line with those achieved across the first two quarters, with the reductions over the prior year reflecting the revised strategy as put in place at the end of FY18 (see our December 2018 update). The FY19 business plan, published in December 2018, targeted revenue of €21.4m plus capitalised costs of €3.1m, generating EBITDA of €14.3m (which would be increased to around €14.6m because of the adoption of IFRS 16), EBIT of €6.8m and net profit of €4.1m. These targets are consistent with the published results for the first nine months of 2019.

Exhibit 1: Mondo TV Group’s Q319 results summary

€m

H119 (IFRS 16)

Q319 (IFRS 16)

9M to September 2019

% change y-o-y

Revenue

11.0

5.7

16.7

(17.7)

Capitalised content development

1.8

0.9

2.6

37.3

Production value

12.8

6.6

19.3

(13.0)

Operating costs

(5.0)

(2.4)

(7.4)

21.7

EBITDA

7.8

4.2

11.9

(26.1)

D&A (including exceptionals)

(4.5)

(2.6)

(7.1)

20.8

EBIT

3.3

1.6

4.8

(52.9)

Net financial costs

(0.1)

(0.1)

(0.2)

N/A

PBT

3.2

1.5

4.6

(56.0)

Tax

(1.2)

(0.6)

(1.7)

(46.1)

Minorities

0.0

(0.1)

(0.1)

(62.3)

Net profit

2.0

1.0

3.0

(60.5)

Source: Company accounts

We forecast investment in content for the current year at €17.4m, reducing to €11m in FY20e and FY21e. €13.4m had been invested as at the end of September, so again broadly in line with the full year target. This implies a cash outflow for the year as a whole and our modelling suggests a year end net debt figure of €1.2m, increased to €2.9m on an IFRS 16 basis (was €5m in our previous note). We expect the group to be free cash flow positive in FY20e.

Valuation

Exhibit 2: Peer group valuation

Name

Curr

Price

Market cap (m)

Ytd perf
(%)

P/E
last
(x)

P/E
FY1
(x)

P/E
FY2
(x)

EV/
Sales last (x)

EV/
EBITDA last (x)

EV/
EBITDA FY1 (x)

EV/
EBITDA FY2 (x)

EV/
EBIT
last (x)

EV/
EBIT
FY1 (x)

EV/
EBIT FY2 (x)

Yield FY1 (%)

eOne

GBp

557

2,778

56.2

54.9

21.0

18.6

3.0

14.2

12.9

11.8

18.1

16.6

15.9

0.3

Xilam Animation

EUR

40.95

201

8.8

31.1

27.1

20.4

6.9

8.2

8.3

7.0

21.7

19.1

14.2

0.0

Mediawan

EUR

9.48

303

(13.8)

12.7

11.7

8.7

8.7

7.6

10.1

10.2

8.7

0.0

Lions Gate Ent

USD

9.74

2,040

(39.5)

15.2

12.1

9.8

1.3

18.2

9.7

8.9

47.7

12.7

11.9

0.0

Toei

JPY

4,855

203,910

20.0

16.8

17.3

16.0

3.1

10.3

10.8

12.6

11.5

1.5

Corus Ent

CAD

5.60

1,187

17.9

6.7

5.8

6.1

1.8

5.1

5.2

5.3

7.4

7.0

7.1

4.3

Spin Master

USD

38.96

3,979

1.5

31.9

20.1

17.2

1.9

13.3

9.6

8.9

23.0

13.6

12.2

0.0

Amuse

JPY

3,010

56,057

29.0

11.8

17.2

16.6

0.6

6.6

7.2

6.3

6.1

1.2

Average

10.0

24.1

17.3

14.6

2.7

10.6

9.1

8.2

19.0

12.3

10.9

0.9

Mondo TV

EUR

1.24

45

(11.4)

(2.2)

12.1

9.7

1.0

1.7

1.3

1.0

(0.6)

3.0

2.4

0

Discount (%)

N/A

30

33

62

84

85

88

N/A

75

79

100

Source: Refinitiv, Edison Investment Research. Note: Priced at 15 November 2019.

We adjust Mondo TV’s EV for the value of minorities in quoted subsidiaries. It continues to trade at a substantial discount to the global peer group across all relevant metrics. We prefer to compare on EV/EBIT to avoid discrepancies from the varying treatments of capitalisation of production costs across the peers. Parity on this basis would imply a share price of €2.46 (€2.82 in September). On a P/E basis, again averaged across years one and two, parity equates to a share price of €1.82 (was €1.75).

Exhibit 3: Financial summary

€'m

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

27.4

32.0

18.9

20.8

27.8

Cost of Sales

(9.3)

(8.3)

(7.7)

(6.4)

(8.6)

Gross Profit

18.1

23.7

11.2

14.4

19.1

EBITDA

 

 

18.1

23.7

11.2

14.4

19.1

Operating Profit (before amort. and except.)

 

 

12.7

17.6

(30.6)

6.3

8.1

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(23.9)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

Reported operating profit

12.7

17.6

(54.5)

6.3

8.1

Net Interest

0.0

(2.2)

0.5

(0.3)

(0.3)

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)

 

 

12.7

15.4

(30.1)

6.0

7.8

Profit Before Tax (reported)

 

 

12.7

15.4

(54.0)

6.0

7.8

Reported tax

(4.5)

(3.1)

11.5

(1.7)

(2.2)

Profit After Tax (norm)

8.3

12.3

(22.0)

4.3

5.6

Profit After Tax (reported)

8.3

12.3

(42.5)

4.3

5.6

Minority interests

0.3

0.5

3.0

(0.7)

(1.0)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

8.6

12.8

(19.0)

3.6

4.6

Net income (reported)

8.6

12.8

(39.5)

3.6

4.6

Average Number of Shares Outstanding (m)

27

30

34

35

36

EPS - normalised (c)

 

 

31.1

43.0

(56.3)

10.3

12.8

EPS - normalised fully diluted (c)

 

 

31.1

43.0

(56.3)

10.3

12.8

EPS - (c)

 

 

31.1

43.0

(117.0)

10.3

12.8

Dividend per share (c)

2.0

0.0

0.0

0.0

0.0

Revenue growth (%)

63.2

16.8

(40.9)

10.2

33.2

Gross Margin (%)

66.0

74.0

59.2

69.3

69.0

EBITDA Margin (%)

66.0

74.0

59.2

69.3

69.0

Normalised Operating Margin

46.4

54.9

(162.0)

30.4

29.4

BALANCE SHEET

Fixed Assets

 

 

37.0

47.9

46.0

56.0

56.7

Intangible Assets

31.4

44.1

30.9

40.9

41.5

Tangible Assets

0.3

0.4

0.4

0.4

0.4

Investments & other

5.3

3.4

14.7

14.7

14.7

Current Assets

 

 

37.8

53.6

37.2

35.7

51.3

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

31.7

47.9

20.6

28.4

37.8

Cash & cash equivalents

1.8

2.4

12.4

3.2

9.3

Other

4.3

3.3

4.2

4.2

4.2

Current Liabilities

 

 

(14.0)

(22.6)

(25.1)

(28.8)

(36.7)

Creditors

(11.7)

(15.0)

(21.6)

(23.1)

(30.9)

Tax and social security

(0.2)

(0.4)

(0.5)

(0.5)

(0.5)

Short term borrowings

(2.1)

(3.6)

(3.0)

(5.3)

(5.3)

Other

0.0

(3.7)

(0.0)

0.0

0.0

Long Term Liabilities

 

 

(0.8)

(1.2)

(1.9)

(4.2)

(4.3)

Long term borrowings

(0.6)

(0.7)

(1.3)

(4.1)

(4.2)

Other long term liabilities

(0.2)

(0.5)

(0.6)

(0.1)

(0.1)

Net Assets

 

 

60.0

77.7

56.1

58.7

66.9

Minority interests

0.0

(0.6)

2.1

0.7

1.0

Shareholders' equity

 

 

60.0

77.1

58.2

59.4

68.0

CASH FLOW

Op Cash Flow before WC and tax

18.1

23.7

11.2

14.4

19.1

Working capital

(1.9)

(11.2)

6.0

(4.7)

(1.6)

Exceptional & other

0.7

(0.8)

(11.0)

0.0

0.0

Tax

(4.5)

(3.1)

11.5

0.0

0.0

Net operating cash flow

 

 

12.5

8.7

17.6

9.8

17.5

Capex

(20.6)

(19.2)

(28.6)

(17.5)

(11.1)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Net interest

(0.2)

(0.2)

0.0

(0.3)

(0.3)

Equity financing

7.2

9.4

20.9

1.2

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.3

0.1

0.0

(2.3)

0.0

Net Cash Flow

(0.7)

(1.2)

10.0

(9.2)

6.1

Opening net debt/(cash)

 

 

0.2

0.9

2.0

(8.0)

2.9

FX

(0.1)

0.1

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

(1.7)

0.0

Closing net debt/(cash)

 

 

0.9

2.0

(8.0)

2.9

(3.2)

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.

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 research department of Edison 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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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.

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 research department of Edison 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.

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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

1,185 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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