Library value up 13% and H118 trading on track

Entertainment One 27 September 2017 Update (1-4pgs)
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Entertainment One

Library value up 13% and H118 trading on track

Trading update

Media

27 September 2017

Price

258p

Market cap

£1,111m

Net debt (£m) at March 2017
Production finance (£m) at 31 March 2017

187.4
152.3

Shares in issue

430.5m

Free float

68%

Code

ETO

Primary exchange

LSE (FTSE 250)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.3

17.2

21.9

Rel (local)

9.6

18.8

14.5

52-week high/low

260.50p

210.00p

Business description

Entertainment One is an international entertainment company. Through its strategic partnerships and global distribution network, it produces, develops and acquires film, television, music and family content for distribution around the world. It is headquartered in Canada and has more than 1,300 employees. Approximately 55% of revenues are derived from North America, 30 % from Europe and the balance from RoW.

Next events

H118 results

November 2017

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Fiona Orford-Williams

+44 (0)20 3077 5739

Entertainment One is a research client of Edison Investment Research Limited

Operating performance across all Entertainment One (eOne) divisions is in line with management’s full year expectations, with the H1/H2 weighting expected to be broadly in line with last year. As the group’s business grows, so does its library valuation, which has increased by 13% y-o-y to $1.7bn, underpinning c 80% of the current EV.

Year end

Revenue
(£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

802.7

129.1

104.1

19.4

1.2

13.3

0.5

03/17

1,082.7

160.2

129.9

20.0

1.3

12.9

0.5

03/18e

1,180.2

175.0

146.0

22.0

1.4

11.7

0.5

03/19e

1,280.1

199.9

167.4

24.7

1.5

10.4

0.6

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

Full year outlook reiterated

Operating performance is on track to meet full year expectations with the H1/H2 weighting of performance similar to last year. Management has also reiterated its expectation of a net debt to EBITDA ratio of c 1.2x at the end of the year.

All divisions on track

In Family, Peppa Pig is seeing growing momentum in newer territories. Initial retail revenues in China are ahead of expectations and more mature markets have benefited from the release of Peppa’s first cinematic film last year. The roll-out of PJ Masks, which started in the US last year, has progressed well in Europe and Australia where retail revenues are also tracking strongly and Asia will be added in H218 with China to follow. In eOne Television, management now expects c 900 half-hours to be delivered across the year versus guidance of 1,000, with the mix moving more towards scripted content. MGC is performing well. Four of the five heritage shows have been renewed, as well as Designated Survivor under the new production/distribution arrangement with eOne. In H218 MGC is also expected to release its first film productions including Molly’s Game, which is also being distributed by eOne outside the US. In Film, the H1 slate was smaller and lower profile than last year’s which included the The BFG; however, the H2 slate looks solid, including Spielberg’s The Post, Paddington 2 and Molly’s Game.

Library valuation increases to $1.7bn (£1.3bn)

eOne has also reported a 13% increase in the value of its library, attributed to the success of PJ Masks and Designated Survivor. With c 80% of the market valuation underpinned by the library, this leaves little in the rating for the value of eOne’s extensive production and sales network. Compared to peers, the shares also offer value; on a 2018e EV/EBITDA of 7.9x, it trades at a substantial discount to peers Lionsgate (14.9x) and DHX (10.8x). Approximately 70% of EBITDA is now from the higher-growth and higher-margin divisions; we believe that eOne’s strategy, which leans more towards produced rather than acquired content, is playing out and expect this discount to close.

Exhibit 1: Financial summary

£m

2015

2016

2017

2018e

2019e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

785.8

802.7

1,082.7

1,180.2

1,280.1

Cost of Sales

(578.0)

(610.1)

(822.9)

(896.9)

(972.9)

Gross Profit

207.8

192.6

259.8

283.2

307.2

EBITDA

107.3

129.1

160.2

175.0

199.9

Operating Profit

103.6

124.7

155.3

169.5

193.4

Amortisation of intangibles

(22.2)

(27.4)

(41.9)

(40.0)

(40.0)

Exceptional items

(17.9)

(16.6)

(47.1)

0.0

0.0

Share based payment charge

(3.4)

(5.7)

(5.0)

(5.0)

(5.0)

JV tax, finance costs, dep'n

0.1

(1.6)

0.0

0.0

0.0

Operating Profit

60.2

73.4

61.3

124.5

148.4

Net Interest

(14.8)

(20.6)

(25.4)

(23.5)

(26.0)

Exceptional finance items

(1.4)

(6.5)

1.3

0.0

0.0

Profit Before Tax (norm)

88.8

104.1

129.9

146.0

167.4

Profit Before Tax (FRS 3)

44.0

47.9

37.2

101.0

122.4

Tax (reported)

(2.7)

(7.7)

(12.3)

(22.2)

(28.2)

Tax (adjustment for normalised earnings)

(16.8)

(16.8)

(16.1)

(9.9)

(10.4)

Profit After Tax (before non-controlling interests) (norm)

69.3

79.6

101.5

113.8

128.9

Profit After Tax (before non-controlling interests) (FRS3)

41.2

40.2

24.9

78.7

94.3

Non-controlling interests

0.0

(3.7)

(11.9)

(17.5)

(19.9)

Average Number of Shares, Diluted (m)

332.9

379.8

433.4

437.5

442.0

EPS - normalised (p)

20.8

19.4

20.0

22.0

24.7

EPS - FRS 3 (p)

12.7

9.8

3.0

14.4

17.4

Dividend per share (p)

1.1

1.2

1.3

1.4

1.5

Gross Margin (%)

26.4

24.0

24.0

24.0

24.0

EBITDA Margin (%)

13.7

16.1

14.8

14.8

15.6

Operating Margin (before GW and except) (%)

13.2

15.5

14.3

14.4

15.1

BALANCE SHEET

10%

12%

Non-current Assets

538.4

890.7

972.7

956.9

927.8

Intangible Assets (incl Investment in programmes)

473.9

808.2

870.6

857.3

834.7

Tangible Assets

6.1

60.1

72.8

78.3

81.8

Deferred tax/Investments

58.4

22.4

29.3

21.3

11.3

Current Assets

634.3

752.0

928.3

942.8

1,015.6

Stocks

52.0

51.1

48.6

48.6

48.6

Investment in content rights

221.1

241.3

269.8

287.8

291.0

Debtors

289.9

351.3

476.5

531.4

600.9

Cash

71.3

108.3

133.4

75.0

75.0

Current Liabilities

(488.3)

(568.7)

(679.4)

(673.9)

(682.1)

Creditors

(398.7)

(470.7)

(574.6)

(569.1)

(577.3)

Short term borrowings

(89.6)

(98.0)

(104.8)

(104.8)

(104.8)

Long Term Liabilities

(319.6)

(413.6)

(464.6)

(456.4)

(437.1)

Long term borrowings

(295.9)

(309.1)

(368.3)

(360.1)

(340.8)

Other long term liabilities

(23.7)

(104.5)

(96.3)

(96.3)

(96.3)

Net Assets

364.8

660.4

757.0

769.3

824.2

CASH FLOW

Operating Cash Flow

271.9

320.1

438.4

534.0

660.1

Net Interest

(13.4)

(31.0)

(25.0)

(23.5)

(26.0)

Tax

(10.8)

(17.7)

(18.4)

(26.7)

(33.8)

Capex

(4.8)

(8.6)

(3.8)

(11.0)

(10.0)

Acquisitions/disposals

(104.3)

(226.0)

(7.5)

(10.0)

(10.0)

Investment in content rights and TV programmes

(280.8)

(218.5)

(408.1)

(503.0)

(550.0)

Proceeds on issue of shares

0.0

194.6

0.0

0.0

0.0

Dividends

(2.9)

(4.0)

(8.3)

(10.0)

(11.0)

Net Cash Flow

(145.1)

8.9

(32.7)

(50.1)

19.4

Opening net debt/(cash)

165.1

314.2

299.0

339.7

390.0

Movements in exchangeable notes

0.0

0.0

0.0

0.0

0.0

Other including forex

(4.0)

6.3

(8.0)

(0.1)

(0.0)

Closing IFRS debt/(cash)

314.2

299.0

339.7

390.0

370.6

Analysis Of Net Debt

Production finance

89.3

118.0

152.3

185.6

210.0

Net debt

224.9

181.0

187.4

204.4

160.6

Gearing

2.1

1.4

1.2

1.2

0.8

Source: Entertainment One (historics), Edison Investment Research (forecasts)

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 Entertainment One 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 Entertainment One 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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