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MeteoHeroes are go for gaming

Mondo TV 9 June 2021 Outlook
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Mondo TV

MeteoHeroes are go for gaming

Q1 update

Media

9 June 2021

Price

€1.66

Market cap

€72m

Net debt (€m) at 31 March 2021 (IFRS)

0.9

Shares in issue

43.6m

Free float

71.6%

Code

MTVI

Primary exchange

Borsa Italiana Star

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

18.7

26.8

(25.7)

Rel (local)

13.1

15.2

(42.0)

52-week high/low

€2.15

€1.21

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 (63%) and Mondo TV Iberoamerica (78%). It owns the rights to more than 1,600 TV episodes and films, which it distributes across global markets.

Next events

Interim results

14 September 2021

Q3 results

12 November 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Mondo TV is a research client of Edison Investment Research Limited

Mondo TV Group has had a strong start to the year, with continuing deals on its key properties, including MeteoHeroes, Grisù and Agent 203. New contracts include a first to develop, produce and distribute a video game based on MeteoHeroes for Sony from the group’s upgraded studio subsidiary in the Canary Islands. The funding round from Atlas, completed in Q121, has put the group on a sound financial footing. With its extensive library and a strong front list, Mondo TV is in a good position to benefit from the continued appetite for content from broadcasters and streamers.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

EV/EBIT
(x)

P/E
(x)

12/19

23.1

6.2

11.3

0.0

8.6

14.7

12/20

24.7

6.4

13.2

0.0

7.6

12.6

12/21e

29.2

10.5

15.0

0.0

5.2

11.1

12/22e

31.3

12.8

17.3

0.0

4.8

9.6

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

Strong Q121 performance

Mondo TV’s first quarter production value of €8.02m was 35% ahead of the prior year, boosted by agreed sales of new series. The gain at EBITDA level was slightly offset by higher operating and production costs, reflecting the scaling up of operations, with an EBITDA margin to production value of 64.7% from 66.9% in Q120. Italian state broadcaster RAI has agreed the pre-purchase of Grisù, with a seven-year licence from production completion, which significantly de-risks the project. Work on this is underway, along with the second series of MeteoHeroes (with strong eco themes resonating well with audiences) and Agent 203, being produced under the joint venture with Toon2Tango. The agreement for MeteoHeroes PlayStation (then PC and Mac) games may herald another important licensing avenue. There is no change to management guidance for FY21e for €34.9m of production value, up 15% on the prior year, generating EBITDA of €24.6m. Given the strength of the order book, we have edged our FY22e production value estimate up 2% to €36.9m.

Atlas funding underwrites growth

All the corporate bonds issued to Atlas Special Opportunities in FY20 have now been converted, bringing in a total of €10.5m, of which the final €4.25m fell in Q121. Net debt at the end of March was €0.9m, including €0.8m of IFRS 16 lease liabilities. Stripping these out, the position is effectively net cash neutral. Our modelling suggests end-FY21 (IFRS) net cash of €2.1m, assuming investment in animated and live series of €20.2m in the year, with a further small accretion in FY22e.

Valuation: Deep discount persists

Parity to global peers on averaged earnings multiples across FY20–22e would imply a value of €3.84/share (April 2021: €3.81). A DCF (WACC of 11.5%, terminal growth 2%) suggests a price of €2.10. The midpoint of these is €2.97 (April 2021: €2.91). We would expect Mondo’s valuation discount to close further as the financial benefit of recent deals flows through to revenues.

Investment case

Mondo TV’s investment case centres on its ability to develop, produce and monetise children’s animated content for the global market. The following factors should also be considered:

COVID-19 had relatively little operational impact on the group, with swift adjustment to remote working for most operating territories and the studios located in the Canary Islands able to continue producing animated content. There was some disruption from the lack of trade fairs, where distribution and licensing deals are negotiated, but necessity ensured that deal-making continued.

Structural changes to the market mean strong demand in the short to medium term. The rapid take-up of video on demand (VoD) and streaming VoD (SVoD) globally has fuelled a well-documented thirst for content from the major players, with new entrants continuing. Consolidation among the larger US and global players highlights the need for quality content for regional broadcasters and streamers. High-quality animated series can drive new subscriptions and stimulate viewer loyalty. Children’s content is a key element of the various providers’ offerings.

Well-established player in the children’s scripted market with reputation for quality animation. Mondo TV was founded in 1985, bringing Japanese cartoons to European markets, before starting to produce its own content based on classic characters. Its production capabilities and distribution network are well recognised by the market and it has a strong presence at the relevant trade fairs, although most are still virtual or hybrid currently.

Animation suitable for wide geographic distribution. Mondo TV’s core offering suits the international market well. Animated content is more easily dubbed into other languages and (generally) has less cultural sensitivity.

Management experienced and committed. The death of co-founder Orlando Corradi in 2018 forced a generational change at the group. His son, Matteo, joined the company on graduating in 1996 and has been CEO since 2012. Monica Corradi is also an executive director. Carlo Marchetti, CFO, has been with the group for 13 years. The Corradi family holds 33.5% of the equity.

Secure balance sheet. The balance sheet has been significantly strengthened by the FY20 convertible bond issue by Atlas Special Opportunities (see our update notes published in September 2020 and November 2020) (similar to the exercise carried out in FY18). This has given a cash injection of €10.5m, with all bonds now converted, allowing the group to press ahead with investment both in properties and in enhancing its in-house production facilities in the Canary Islands. Net debt at end Q121 was €0.9m.

Broadening geographic mix. Asian customers remain a very important part of the mix, but the June 2019 Toon2Tango deal accelerated the group’s exposure to new markets in Northern Europe and English-speaking countries on a lower-risk basis. Recently announced deals are primarily in Italy, Spain and Germany.

Potential for growth in licensing and merchandising. Licensing and merchandising have always formed an element of sales, but the group is now able to strike deals where there is no associated TV content. This aspect of the business has been more difficult to pursue in COVID conditions, but we would expect it to start growing more strongly once trade and toy fairs restart.


Description: Production and exploitation of content

Mondo TV is a leading Italian producer and distributor of children’s animated television series, with additional interests in live teen fiction. It has one of the largest animation libraries in Europe, owning the rights to over 1,600 TV episodes and films, which it distributes across global markets. Its production investment and sales strategy is focused on:

new productions with high licensing potential, co-produced with third parties; and

the distribution of third-party libraries.

Its properties (both owned and licensed) are predominantly character based. Mondo rarely uses its own IP, as this requires far greater levels of upfront investment to familiarise the market to the characters. The collaboration with German partner Toon2Tango, described below, gives it early access to pre-qualified properties from a highly experienced developer. Mondo typically co-produces TV series where the brand is already known through toys (eg YooHoo), comic strips (eg Sissi), or books (eg Treasure Island) and brings them to life with animation. Partners would typically be:

toy companies looking to develop an existing toy brand (eg Aurora World Corporation);

broadcasters (for instance its partnership with RAI in Italy on Grisù); and

third-party producers looking to market an asset internationally.

This approach gives Mondo an edge in a very competitive marketplace, de-risks its investment in production and supports a more rapid exploitation of higher-margin licensing and merchandising revenues. Individual properties are described and illustrated below.

Exhibit 1: Split of production value by activity FY20

Exhibit 2: Business model summary

Source: Mondo TV accounts

Source: Edison Investment Research

Exhibit 1: Split of production value by activity FY20

Source: Mondo TV accounts

Exhibit 2: Business model summary

Source: Edison Investment Research

Mondo TVs revenues derive from three categories: production services, distribution and brand licensing.

Production services

Production has historically been mostly done under the supervision of management but using third-party designers, screenwriters and directors, keeping its cost base flexible. In FY16, Mondo established its own in-house pre-production team in the Canary Islands (Producciones Canarias) to work on the development of concepts and storyboards. This facility has now been upgraded and expanded to take on more of the group’s production work (and thereby retain more margin), with additional capability in 3D CGI. Generally, Mondo either works for a fee or will be involved in co-productions, retaining a share of the worldwide distribution rights. Co-productions support some of the financing of a production or part of the organisational requirements.

Exhibit 3: Key Mondo content properties

Source: Mondo TV. Note: Clockwise from top left – Grisù, MeteoHeroes, Sissi the Young Empress, Invention Story, Nina & Olga, Annie & Carola, Robot Trains, Bat Pat, House of Talent, Agent 203.

The joint venture with Toon2Tango was set up in June 2019. Toon2Tango was at that stage a newly established German children’s and family entertainment venture founded by Ulli Stoef, a well-known and established figure in the industry, now working independently. The alliance was set up to focus on developing, producing and distributing unique and high-quality programmes with strong merchandise appeal. The agreement targeted Toon2Tango developing at least eight new animated TV series over the following four years, which the two groups would co-produce and distribute. Three further animated series have since been added. These are to be targeted at the international market, with Mondo concentrating on its strongest regions across Southern Europe and Asia and Toon2Tango managing Germany, Austria, Switzerland, the United Kingdom and Ireland, Scandinavia and Benelux. Distribution, licensing and merchandising rights vary by territory, with the two groups co-operating on some multi-territory deals. Under the terms of the agreement, Mondo and Toon2Tango co-own the underlying IP and revenues accruing from the projects will be divided equally.

The first project from the collaboration, the animated series Agent 203 was launched in FY19, along with four other projects. The increasing scale of the partnership strengthens the group’s positioning in Northern Europe.

The group also has a longstanding collaboration with Henan York Animation in China, with which it developed Invention Story.

Most of Mondo’s productions target the under-10 audience, although its live fiction with the co-production of Heidi, Bienvenida a Casa is aimed at a teen audience. House of Talent is also live action, but reality, featuring social media influencers with younger followers. Production of these was obviously limited by the conditions of the pandemic in FY20.

Production revenues comprise a mix of recurring series and revenues from new shows, with new shows becoming a more important part of the mix over the course of the five-year business plan.

Distribution

Mondo has a sales team of nine involved in the sale of rights plus a number of sub-agents, which gives it permanent representation across Southern Europe, France, the Middle East, Latin America and Russia. Successful animations have enduring appeal and as the children’s audience is replenished yearly, can be re-sold to a new generation of kids over and over again. We estimate that approximately €3.5m of Mondo’s annual licence sales are from its library and the remainder from more recent titles. Although Mondo is very conscious of regional tastes, most animations are dubbed into a number of languages and are marketable in multiple territories. As well as selling its own library, Mondo has a number of distribution deals, for instance with Turner, Cake and Your Family Entertainment.

While most sales are of series, the mindset of the distribution is more firmly on building franchises around the properties that help with a broader monetisation strategy.

Licensing brands

Mondo TV handles both its own brands and third-party properties for which it is the representative, where it receives a commission. Rights are sold to merchandisers and toy manufacturers and there is therefore no physical stock risk. These are not necessarily linked to a TV series (although most are). In October 2019, it was appointed the licensing agent in Italy, Spain and Portugal for the classic Julia Donaldson/Axel Scheffler property, The Gruffalo.

The recently announced deal with Sony Interactive to develop and promote video games for MeteoHeroes indicates another potential licensing avenue.

Second generation at the helm

Matteo Corradi is the son of the founder and is president and CEO of the group, having joined after graduating in 1996. He was appointed CEO in 2012. The CFO is Carlo Marchetti, an accountant who joined the group in 2008 and was appointed a director the following year. The other executive director is Monica Corradi and the board is completed by two independent directors. This team’s strategy, honed and published in late 2018, broadened the revenue generation model. It looks to:

Focus on higher-yield properties with support from pre-sales, particularly before the production phase. Emphasis is on selectivity, based on thorough market research and working with more internationally credible partners and broadcasters on co-productions. Digital opportunities are preferred.

Progress: this aspect of the strategy is working well, evidenced by the strong performance of key properties such as MeteoHeroes and Grisù and the interest that they are generating with mainstream distributors such as RAI with the pre-funding in place.

Expand the range of third-party product, both in cartoons and live action targeted at young audiences.

Exhibit 4: Revenue by geography development

Source: Mondo TV accounts

Achieve a better balance between Asia and other territories to reduce the overall risk levels within the business. Asia accounted for 79% of revenues in FY20, from 74% in FY19, 83% in FY17 and 81% in FY18. Management is especially keen to build exposure to the US market and wants to increase market share in Northern Europe and Russia to counter the traditional revenue bias to Asia and Southern Europe. No specific target has been set, but we understand that having half group revenues from Asia and the balance from the rest of the world would be a more comfortable position for management.

Progress: we would expect that there will be a more significant shift over the next couple of years as the newer contracts start coming through.

As at 31 December 2020, the group had 53 employees, of whom four are executives, up two employees compared to 31 December 2019. The Italian operation is the largest within the group, with 25 employees, while the scale-up in the production facility in Gran Canaria has taken the number at Mondo TV Producciones Canarias to 15, with the intention to build staffing up to 50 over time by:

optimising synergies; and

reorganising internal work, particularly in Production.

The current group structure is shown below. It has just been announced (26th May link: https://www.mondotv.it/wp/wp-content/uploads/2021/05/COS52.0-Progetto-fusione-inversa-Mondo-Iberoamerica-con-Mondo-Canarias-26.05.2021.pdf) that Mondo TV Producciones Canarias will reverse takeover the Spanish entity, Mondo TV Iberoamerica. This will simplify the group structure and help towards the objectives outlined above.

Exhibit 5: Group structure

Source: Mondo TV, Edison Investment Research

Key properties and recent deals

Exhibit 6: Key deals Q120 to date

Date

Partner/ customer

Country

Property

Rights, contract

Comments

Q120

Toon2Tango

TV, Licensing

Extension with three additional properties

Feb-20

RSI

Switz

Sissi, MeteoHeroes

Mar-20

Turner Italia

Italy

Yo Soy Franky (S1 and S2)

RTVE

Spain

BatPat 2

Part of IP

Apr-20

Italy

MeteoHeroes, Invention Story

Launched

Enanimation

Spain

Nina Y Olga

Co-production contract

May-20

TIMVISION

Italy

6 properties including Invention Story, Robot Trains, Sissi

Licensing from broadcast

Samsung

Italy

50 movies plus 20 series

1-yr initial contract

Mondo TV channel on Samsung TV Plus, launched Q320

Jun-20

Huawei

26 countries globally

58 series

2-yr (initially) rev-share model

Airing on Huawei online platform

Jul-20

HK Tianhai Culture Tech

Invention Story

Contract transferred post change of ownership

Jul-20

RTVE

Spain

Annie e Carola

Co-production contract

First to be completely handled by Canary Islands subsidiary, for release H222

Nov-20

Toon2Tango/ZDF Enterprises

Grisù

Co-production with ZDF

Being produced in-house in Canary Islands, completion scheduled H222

Jan-21

RAI

Italy

Grisù

7-yr licence from completion date

Effectively underwrites the project

Minerva Pictures

Italy

8 classic series and 22 animated films from library

AVOD, SVOD and TVOD to 12/23

Flat licence fee

VlogBox

US

4 classic series

AVOD & SVOD rights

2/23 to 8/23, minimum guarantee + rev share

SUPER RTL

Germany

Agent 203

Commissioning broadcaster

With Toon2Tango, de-risks project

Apr-21

Sony Interactive

Spain

MeteoHeroes

Video game licence

Development, promotion and distribution

Source: Mondo TV, Edison Investment Research. Note: AVOD, SVOD and TVOD specifically excludes YouTube.

The deal flow has been coming through regularly and covers an encouraging range of properties, as well as further monetisation of the library assets. We have selected some of the key transactions and summarised them here. We would note that most relate to European distribution, but that it is worth highlighting the appearance of the US in the list with the VlogBox contract, as Mondo’s management has long had ambitions to make more significant inroads into that important market.

Sensitivities

Mondo TV has more than 50 years’ experience in animation and knows its markets well. However, it has invested considerable resources in developing new titles for licensing, which may be less successful than it hopes depending on how they are received by their target audience of children. Our estimates consider management’s business plan (allowing for contingencies) and the final outturn could be higher or lower depending on both internal and external factors.

There has been resilience within the business model to the net effects of COVID-19 on the group’s activities, although it is inherently unquantifiable. Increased consumption of entertainment content and the lack of live filming alternatives have stimulated demand for animated content. Initially, it made it more difficult to transact the relevant deals, with trade fairs cancelled or postponed, but inevitably new methodologies are developing. Closed and curtailed retail trading conditions also hampered the sell-through of licensed and merchandised materials. Content production continued broadly uninterrupted.

Mondo’s ability to forge partnerships with broadcasters and toy companies is key to securing access to quality brands to develop. The group has a broad spread of customers and partners and the shift in strategy to focus less on Asia should reduce risk further.

There is a risk that animations may take longer than expected to produce and hence deliveries will be delayed, although Mondo is highly experienced at managing animation projects.

The long-term success of a series is ultimately determined by children’s tastes. We assume moderate success across Mondo’s portfolio. A significant success or flop could have a considerable impact on forecasts.

Mondo TV operates in international markets and many of its transactions are denominated in US dollars, whereas it reports in euros.

Credit risk. Most of Mondo’s larger customers are established groups and many are repeat customers. However, some of the largest can be relatively aggressive over payment terms and are increasingly seeking to push working capital back up the supply chain.

There are a significant number of warrants attached to the Atlas convertibles (1.95m). Given the current share price, we have not reflected these in our forecasts, as 0.45m are exercisable at €7.5 with an expiry date of June 2023 and the balance of 1.5m are exercisable at €3.0, expiring in October 2025.

Margins on library sales are high so any variance from the business plan has a significant effect on profits. Sales of new titles are harder to predict, although a significant proportion is pre-sold before production commences. The character licensing market is to some extent ‘hit’ driven, which makes forecasting medium-term licensing revenues difficult.

Valuation

Having recovered from a low of €1.19 at the onset of the pandemic, the share price climbed to €2.19 in early June 2020 and then lost nearly all of that gain over the subsequent eight months. Having bottomed out at €1.21 at the end of January, it has staged a good recovery to reach current levels.

Substantial discount to peers

Despite the recent rebound, the share price remains at a substantial discount to global peers, as shown in Exhibit 7 below. At least some of this discount will be attributable to the limited liquidity in the stock. We have added Boat Rocker, which listed on the Toronto Stock Exchange in Canada in March this year, to the list of relevant peers. While it has a broader business model than Mondo TV, it does have a strong focus on children’s content.

If the valuation gap with these peers were to be closed, on averaged earnings multiples across FY20–22e, the implied share price would be €3.84/share (April 2021: €3.81).

Exhibit 7: Peer group summary valuation ratings

Name

Ccy

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)

Xilam Animation

EUR

43.90

213

(6)

86.0

26.3

21.5

10.7

15.4

5.5

5.2

55.4

19.2

15.9

Mediawan

EUR

12.00

370

0

17.3

1.9

12.1

15.2

Lions Gate Ent

USD

20.79

4,240

83

339.4

2.2

13.4

16.1

12.6

73.3

32.7

Toei

JPY

12,020

491,603

49

44.4

45.8

43.3

8.9

28.7

28.1

26.9

Corus Ent

CAD

6.30

1,295

47

9.1

7.2

7.0

1.9

5.5

5.3

5.2

8.1

6.7

6.4

Spin Master

CAD

38.72

3,973

34

62.7

21.9

19.1

2.0

17.1

9.6

8.8

35.9

15.1

13.4

Amuse

JPY

2,353

40,987

(9)

24.5

0.5

4.5

Boat Rocker

CAD

7.00

241

(20)

15.2

13.2

1.1

9.3

3.1

4.4

Average

22

40.7

23.3

73.9

3.6

13.8

12.3

10.3

28.6

28.6

14.6

Median

17

34.5

21.9

20.3

1.9

13.4

9.5

7.0

25.6

17.1

13.4

Mondo TV

EUR

1.68

73

26

12.6

11.1

9.6

2.5

3.3

2.5

2.3

7.2

5.2

4.8

Discount to median

63%

49%

53%

-31%

75%

73%

67%

72%

70%

64%

Source: Refinitiv. Note: Prices as at 09 June 2021.

DCF valuation

We have also looked at a DCF approach, under varying WACC and terminal growth assumptions.

Exhibit 8: DCF (€/share)

Terminal growth rate

0.00%

1.00%

2.00%

3.00%

4.00%

WACC

13.00%

1.74

1.79

1.85

1.92

2.01

12.50%

1.80

1.86

1.93

2.01

2.11

12.00%

1.87

1.93

2.01

2.10

2.22

11.50%

1.95

2.02

2.10

2.21

2.35

11.00%

2.03

2.11

2.21

2.33

2.49

10.50%

2.11

2.21

2.32

2.47

2.66

10.00%

2.21

2.32

2.45

2.63

2.86

9.50%

2.32

2.45

2.60

2.81

3.09

9.00%

2.44

2.59

2.77

3.02

3.37

8.50%

2.58

2.75

2.97

3.28

3.72

Source: Edison Investment Research

The company’s report and accounts show management’s calculation of the group’s WACC at 11.6%. Using 11.5% and a terminal growth rate of 2%, our DCF shows a suggested share price of €2.10, based on our medium-term modelling, which builds in a level of contingency against management’s published five-year business plan. This compares with a figure of €2.01 at the time of our last update in April.

The midpoint of these two valuation approaches is €2.97. It is also worth noting that the balance sheet value of the group’s library is €44.7m, equivalent to €1.03/share.

Financials

Earnings prospects set out in business plan

FY19 showed a marked recovery from FY18, which was a particularly difficult year for the group in trading and with the death of the founder (who still played a strong role in the business), which led to a significantly poorer financial outcome. The consequent root-and-branch reappraisal of the existing business and its prospects resulted in the rebased five-year plan (FY19–23), as published in December 2018. The shift in emphasis to other regions apart from Asia (79% of FY20 revenue) was made more difficult in the year by the pandemic conditions, as shown in Exhibit 4, although we do not model the group on a geographic basis. Given that the deals announced over the last year have predominantly been for European customers, we would expect this reorientation to show more strongly from FY21.

Exhibit 9: Key earnings metrics (€m) of most recent published business plan forecasts

2017

2018

2019

2020

2021e

2022e

2023e

Value of production

34.0

22.2

24.5

34.0

38.5

40.8

44.4

EBITDA

23.7

11.2

14.3

19.9

24.2

28.2

31.5

EBITDA mgn to prod. value

69.7%

50.5%

58.4%

58.6%

62.8%

69.2%

71.1%

EBIT

17.6

(30.6)

6.3

9.0

11.7

14.0

16.9

EBIT mgn to prod. value

51.8%

N/A

25.7%

26.4%

30.3%

34.2%

38.2%

Net profit

12.3

(42.5)

4.1

5.4

7.0

8.4

10.5

Source: Mondo TV accounts, Mondo TV business plan, Edison Investment Research

The exhibit above clearly shows the rebasing of the group, with FY18 set to have been the nadir of its fortunes. Given that these projections are issued directly by the company, we have reviewed them for reasonableness and compiled our thoughts on how revenues and costs break down considering the historical reports and comments made in various management statements.

Exhibit 10: FY20 versus business plan forecasts (€m)

 

2020 (forecast)

2020 (actual)

difference

Revenue

29.2

25.3

(13%)

Production value

34.0

30.3

(11%)

EBITDA

19.9

18.8

(6%)

D&A

(10.9)

(10.5)

(4%)

EBIT

9.0

8.3

(8%)

Net profit

5.4

4.4

(19%)

Source: Mondo TV accounts, Edison Investment Research

At the time the business plan was drawn up, there was obviously no foresight of the disruption reaped by the pandemic. However, as shown here, the impact on the business was well contained, partly reflecting the longer-term nature of the client relationships, partly reflecting the resilience of demand.

Exhibit 11: Earnings and investment

Source: Mondo TV accounts, Edison Investment Research

Investment in content remains a key lead indicator and we demonstrate that here. Without investment in production, there is nothing to sell in future periods. The shift towards greater pre-sales should mean the risk profile associated with investment improves.

Exhibit 11 above shows there is a fair degree of inbuilt visibility of earnings from new productions over the short to medium term, but individual contract values are not disclosed for reasons of commercial sensitivity. Library sales, which we estimate at around 15% of revenues, are steady, with growth across management’s business plan forecast period at a little over 10%.

In terms on margin, the progression is set to accelerate from FY21 as more production is carried out in-house at Producciones Canarias, rather than subcontracted to third parties. Margin is also driven by the balance of licensing and merchandising income in the mix. Again, we would expect this to increase in light of the deals announced over the last year or two. Our modelling indicates EBITDA margin to production value increasing from 61.8% in FY20 to 70.5% for the current year and 74.2% for FY22e.

Contingency slightly reduced for FY22e

Following the strong start to the year reported in the Q121 update, with production value of €8m, up 35% on Q120 (pre-pandemic onset), we leave our full year FY21 estimates unchanged for now given the unaltered previous management guidance and the upgrades that we put in place after publication of the FY20 figures in April. At that juncture, we introduced forecasts for FY22e and we have now edged these up slightly by reducing the contingency against the business plan forecasts. The effect is to raise our projected production value from €36.2m to €36.9m, which lifts FY22e EBITDA from €26.9m to €27.4m, still some way below the management plan to deliver €28.2m.

Cash flow boosted by Atlas cash injection

Operating cash flow in FY20 benefited from relatively modest absorption of working capital as payment terms with the major platforms and broadcasters stayed more stable than many had anticipated (some have poor reputations for stringing out settlement).

Investment stepped up over FY19 as new series went into production, but with an increasing element of pre-sales, the risk associated with this investment is considerably lower than it was for the group prior to FY18. The other element of investment is in scaling up the production facility within Producciones Canarias, with an initial investment of around €0.3m in offices and equipment.

The key item of note is on the financing line, bolstered by the funding from Atlas Special Opportunities in the form of a €10.5m issue of convertible bonds in FY20, €6.25m of which was issued in that year with the balance of €4.25m coming through in Q121.

By the year-end, €4.5m of the convertible bonds had already been converted into shares. Since then, the balance of €4.25m of convertible bonds have now also issued and the outstanding €6.0m (being the €1.75m issued but unconverted from FY20 and the €4.25m issued in Q121) have been converted (no further related share issuance outstanding).

Exhibit 12: Summary cash flow

Cash flow (€m)

FY19

FY20

FY21e

FY22e

EBITDA

16.4

18.8

24.6

27.4

Operating cash flow before WC movements

15.7

14.6

19.1

22.6

Changes in working capital

(10.6)

(2.5)

(3.4)

(1.4)

Operating cash flows

5.1

12.1

15.7

21.3

Investing cash flows

(14.1)

(18.6)

(20.2)

(20.2)

Financing cash flows

4.7

8.4

6.5

(0.5)

Net change in cash

(4.5)

1.9

2.0

0.5

Source: Mondo TV accounts, Edison Investment Research

The historical dispute with the Italian financial authorities, relating to deferred tax assets for the years FY12-19, was resolved in December 2020. Settlement was agreed at payment of €2.8m in several instalments over four years. We have assumed in our modelling that these are equal payments.

Balance sheet also strengthened

The cash inflow from the issue and conversion of the Atlas bonds put the balance sheet into a much-improved position. At the year-end, net debt was €4.1m, but this included €1.75m of debt related to the bonds, since converted. By end March, net debt was €0.9m. Excluding lease liabilities of €0.8m, the balance sheet was effectively ungeared at that point.

Total warrants outstanding to Atlas now number 1.95m, of which 0.45m are exercisable at €7.5 with an expiry date of 21 June 2023 and 1.5m are exercisable at €3.0, expiring on 31 October 2025.

The group’s library is now valued at €44.7m (as at end FY20 and tested annually), an increase of €9.0m, up 25% on the prior year. While 81% of this value rests with Mondo Italy, the increase in business through Mondo TV France swelled the value of its library from €2.4m to €5.7m.

Exhibit 13: Financial summary

€m

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

23.1

24.7

29.2

31.3

Production value

26.7

30.4

34.9

36.9

Cost of Sales

(6.6)

(5.9)

(4.6)

(3.9)

Gross Profit

16.4

18.8

24.6

27.4

EBITDA

 

 

16.4

18.8

24.6

27.4

Operating Profit (before amort. and except.)

 

 

6.5

8.7

12.1

12.9

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

Exceptionals

(0.2)

(0.4)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

Reported operating profit

6.3

8.3

12.1

12.9

Net Interest

(0.3)

(2.4)

(1.6)

(0.1)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

6.2

6.4

10.5

12.8

Profit Before Tax (reported)

 

 

6.0

6.0

10.5

12.8

Reported tax

(2.1)

(2.0)

(3.3)

(4.0)

Profit After Tax (norm)

4.1

4.6

7.6

9.3

Profit After Tax (reported)

3.9

3.9

7.3

8.9

Minority interests

(0.1)

0.4

(1.4)

(1.7)

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

4.0

5.0

6.2

7.5

Net income (reported)

3.8

4.4

5.9

7.1

Average Number of Shares Outstanding (m)

35

38

42

44

EPS - normalised (c)

 

 

11.3

13.2

15.0

17.3

EPS - normalised fully diluted (c)

 

 

11.3

13.2

15.0

17.3

EPS - (c)

 

 

10.8

11.4

14.2

16.4

Dividend per share (c)

0.0

0.0

0.0

0.0

Revenue growth (%)

21.9

7.1

18.3

7.1

EBITDA Margin on production value (%)

61.4

61.8

70.5

74.2

Normalised Operating Margin on production value (%)

24.4

28.7

34.8

35.1

BALANCE SHEET

Fixed Assets

 

 

50.5

59.1

66.8

73.1

Intangible Assets

35.8

44.8

53.0

59.2

Tangible Assets

1.6

1.2

1.2

1.3

Investments & other

13.1

13.1

12.6

12.6

Current Assets

 

 

35.7

43.6

51.2

54.3

Stocks

0.0

0.0

0.0

0.0

Debtors

24.9

30.7

36.3

38.9

Cash & cash equivalents

8.0

9.9

11.9

12.4

Other

2.8

3.0

3.0

3.0

Current Liabilities

 

 

(19.9)

(23.7)

(23.1)

(24.1)

Creditors

(13.8)

(14.6)

(16.9)

(18.0)

Tax and social security

(0.8)

(3.6)

(3.2)

(3.1)

Short term borrowings

(5.3)

(5.3)

(2.8)

(2.8)

Other

(0.0)

(0.2)

(0.2)

(0.2)

Long Term Liabilities

 

 

(4.7)

(9.6)

(7.9)

(7.9)

Long term borrowings

(4.1)

(8.8)

(7.0)

(7.0)

Other long-term liabilities

(0.6)

(0.8)

(0.8)

(0.8)

Net Assets

 

 

61.6

69.3

87.0

95.3

Minority interests

(1.2)

(0.7)

(0.6)

(0.7)

Shareholders' equity

 

 

60.4

68.6

86.4

94.6

CASH FLOW

Op Cash Flow before WC and tax

16.4

17.0

26.9

27.4

Working capital

(10.6)

(2.5)

(3.4)

(1.4)

Exceptional & other

1.4

(0.4)

(3.9)

0.0

Tax

(2.1)

(2.0)

(3.9)

(4.7)

Operating cash flow

 

 

5.1

12.1

15.7

21.3

Capex

(14.2)

(18.7)

(20.2)

(20.2)

Acquisitions/disposals

(0.1)

0.0

0.0

0.0

Net interest

2.9

4.8

2.3

(0.5)

Equity financing

1.8

3.8

4.3

0.0

Dividends

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Net Cash Flow

(4.5)

2.0

2.0

0.6

Opening net debt/(cash)

 

 

(8.0)

1.4

4.1

(2.1)

FX

0.0

0.0

0.0

0.0

Other non-cash movements

(4.9)

(4.7)

4.2

0.0

Closing net debt/(cash)

 

 

1.4

4.1

(2.1)

(2.7)

Source: Mondo TV accounts, Edison Investment Research

Contact details

Revenue by geography

Via Brenta, 11
00918 Roma
Italy
+39 06 8632 3293
www.mondotv.it

Contact details

Via Brenta, 11
00918 Roma
Italy
+39 06 8632 3293
www.mondotv.it

Revenue by geography

Management team

CEO: Matteo Corradi

CFO: Carlo Marchetti

Matteo Corradi is the son of the late founder, Orlando Corradi, and has worked at Mondo TV since completing his studies in 1996. He has held various management positions in the group. He took over as CEO in 2012 and is responsible for investor relations.

Carlo Marchetti joined Mondo TV in 2007. For 10 years before that, he was chief accountant at Datamat, a listed Italian software and services group. Carlo is a chartered certified accountant and worked at Ernst & Young from 199497.

Management team

CEO: Matteo Corradi

Matteo Corradi is the son of the late founder, Orlando Corradi, and has worked at Mondo TV since completing his studies in 1996. He has held various management positions in the group. He took over as CEO in 2012 and is responsible for investor relations.

CFO: Carlo Marchetti

Carlo Marchetti joined Mondo TV in 2007. For 10 years before that, he was chief accountant at Datamat, a listed Italian software and services group. Carlo is a chartered certified accountant and worked at Ernst & Young from 199497.

Principal shareholders

(%)

Giuliana Bertozzi

17.37

Matteo Corradi

6.58

Ricardo Corradi

4.89

Monica Corradi

4.62

Invesco

3.75


General disclaimer and copyright

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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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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.

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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

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

General disclaimer and copyright

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.

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 2021 Edison Investment Research Limited (Edison).

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.

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

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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