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New funding in place

Mondo TV 17 September 2020 Update
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Mondo TV

New funding in place

Interim figures

Media

17 September 2020

Price

€1.73

Market cap

€63m

Net debt (€m) at 30 June 2020 (IFRS)

3.6

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

(8.5)

(16.2)

45.7

Rel (local)

(8.2)

(17.8)

59.9

52-week high/low

€2.70

€1.08

Business description

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

Next events

Q3 figures

13 November 2020

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Mondo TV is a research client of Edison Investment Research Limited

Mondo TV has announced a succession of distribution and licensing deals through H120, covering a wide range of properties and geographies. To fund the necessary investment and to build its in-house capabilities for 3D CGI animation, it has agreed further funding of up to €10.5m with Atlas Special Opportunities in the form of convertible bonds. Global appetite for children’s TV content remains healthy, with animation benefiting from the reduced filming of live action, and we would expect the flow of deals to continue in H2. Our FY20 and FY21 forecasts are essentially unchanged.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

EV/EBIT
(x)

P/E
(x)

12/18

18.9

(30.1)

(56.3)

0.0

N/A

N/A

12/19

23.1

6.2

11.3

0.0

6.9

15.4

12/20e

28.6

8.5

14.1

0.0

5.0

12.2

12/21e

32.0

9.2

14.6

0.0

4.5

11.9

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

Top line marginally ahead, costs lower

H120 group production value at €12.9m was marginally ahead of the prior year, comprising revenue of €11.2m (+2% on H119) and capitalised development costs of €1.7m (-3%). The step up in EBITDA from €7.8m in H119 to €8.3m for H120 largely reflects lower operating costs from cancelled trade shows and reduced advertising costs due to the COVID-19 pandemic. Given the momentum of deal flow over the last year or so, the full-year forecasts should be achievable and there is negligible change to our published numbers, which are based on management’s business plan, less a modest execution risk adjustment. The additional funding should enable the acceleration of some projects, and revenue expectations for FY21e may need to be raised, particularly with the relative drought of new available content in the market and continuing high levels of demand.

Investment secured for next stage

Mondo TV has agreed a further funding round with Atlas Special Opportunities, similar to that arranged in 2018 (for details, see our Outlook note, May 2020). This new deal, reportedly on improved (but undisclosed) conditions, is for up to €10.5m in convertible bonds. There is also a warrant for 1.5m shares, exercisable within five years, at a price of €3, well ahead of the current share price. This additional funding should allow the group to green-light and accelerate existing projects, including those in joint development with Toon2Tango. Importantly, it also ramps up the planned investment in a new 3D CGI animation studio in the Canary Islands, which will give the group better control over production scheduling and quality.

Valuation: Discount persists despite solid trading

Mondo’s valuation discount to global peers has widened since our May note, as the shares have drifted from a high of €2.26 in early June. Parity on averaged earnings multiples across FY19–21e would generate a value of €3.43/share (May: €2.96). A DCF (WACC of 11.5%, terminal growth 2%) suggests a price of €2.22. The midpoint of these is €2.83 (May: €2.70); we expect Mondo’s discount to narrow.

Half-year results

Exhibit 1: H120 Mondo TV Group results summary

€m

H120

H119

% change

FY19

Revenue

11.2

11.0

+2

23.1

Capitalised content development

1.7

1.8

-3

3.5

Production value

12.9

12.8

+1

26.7

Operating costs

(4.6)

(5.0)

-8

(10.3)

EBITDA

8.3

7.8

+7

16.4

D&A (including exceptionals)

(4.7)

(4.5)

+6

(9.9)

EBIT

3.6

3.3

+9

6.5

Net financial costs

(0.2)

(0.1)

+131

(0.3)

PBT

3.4

3.2

+6

6.2

Tax

(1.2)

(1.2)

+1

(2.1)

Minorities

0.2

0.0

(0.1)

Net profit

2.5

2.0

+22

4.0

Source: Company accounts

The revenue line has been stable through the main period of national lockdowns as revenues are derived from longer-term contracts. Mondo traded across the half with little interruption, with the transition to remote working quickly implemented and production in the Canary Islands continuing.

There has been some short-term impact on working capital as customers moved into lockdown, but this is now correcting as business, particularly in Asia, reverts to a more normal trading pattern. Payments from Asian customers have continued to be regular and management expects that collections will improve over the rest of the year.

Net debt at the half year on an IFRS16 basis was €3.6m, having been €3.3m at the end of Q1, from €1.4m at end FY19. Excluding lease liabilities, net debt at end June 2020 was €2.4m, versus net cash of €0.1m at the year-end.

Deal flow continues

We laid out the deals struck in the first quarter in our May Outlook note. Since that point, the group has announced the following:

Samsung. A dedicated Mondo TV children’s TV channel bundled onto Samsung TV Plus in Italy. This is a one-year contract on an advertising revenue-share model, with 50 movies and 20 series on the channel.

Huawei. 58 of Mondo’s animated series to be included on Huawei’s online platform in 26 countries. This is a two-year contract (with the option for extension) on a revenue-share basis.

The other important development is at the group’s 79%-owned subsidiary, Mondo TV Iberoamerica, where the latter’s 100%-owned subsidiary Mondo TV Producciones Canarias is to expand its facilities in Santa Cruz de Tenerife to include a 3D CGI animation production suite. The regional government of the Canary Islands has put in place a favourable tax regime to encourage animation companies to base themselves there. The upfront cost was originally cited at €0.3m and it may that the Atlas investment will allow for greater ambition here. This resource will be available across the group and should reduce third-party costs (although work will continue to be done externally as well) and allow closer monitoring of quality.

The pace of deals in the first half means there is no change to the published management business plans on which we based our forecasts, with modest contingency for execution risk.

Atlas funding allows progress to accelerate

Similar to the previous arrangement, the new Atlas funding is in the form of a series of convertible bonds: 42 at a value of €250k each, to be approved by shareholders at an EGM. The conversion period is up to four years from issuance. The number of shares into which each bond will convert will be subject to certain conditions and determined by the share price at the time, so we have made no assumptions about this in our modelling, which simply shows the convertible bonds as debt.

The warrants to be issued (again, subject to EGM approval) are for 1.5m new shares at €3, exercisable within five years. Again, this being out of the money, we have not included it in our modelling. There are outstanding warrants from the previous fund-raise exercisable at €6.5 and €10, which expire in April 2021 and 2022.

As well as funding existing projects, this injection will enable some prospects to be accelerated (particularly some in development with Toon2Tango). With the COVID-19 pandemic having had a more serious impact on some less well-funded market participants, there may also be opportunities for acquisitions. In our view, these are more likely to be of properties or licences than of companies. Management is especially keen to build exposure to the US market, and wants to increase market share in Northern Europe and in Russia to counter the traditional revenue bias to Asia and Southern Europe.

Valuation

Since we last published in May, there has been a divergence in share price performance between Mondo TV and the global peer group of content and related licensing companies. Mondo TV’s share price has drifted back from €1.95 to €1.73, while stocks such as Mediawan (which has accelerated its plans to build a major European content provider) and Toei (benefiting from increasing global interest in anime) have gone from being down 26% and 27% respectively on the year to being ahead year to date.

Exhibit 2: Peer group summary valuation ratings

Name

Share price

Market cap (m)

Ytd perf (%)

P/E
last (x)

P/E
1FY (x)

P/E
2FY (x)

EV/
Sales last (x)

EV/
EBITDA last (x)

EV/
EBITDA 1FY (x)

EV/ EBITDA 2FY (x)

EV/
EBIT last (x)

EV/
EBIT 1FY (x)

EV/
EBIT 2FY (x)

Div yield 1FY (x)

Xilam Animation (€)

47.70

234

7.4

33.8

43.6

27.5

8.2

8.9

9.5

6.0

27.6

32.2

19.6

0.0

Mediawan (€)

11.94

383

14.4

15.7

26.8

14.5

2.0

12.4

15.4

10.0

15.6

19.4

12.1

0.0

Lions Gate Ent (US$)

83.66

2,004

-10.2

1.3

10.6

11.2

10.0

38.2

32.2

0.0

Toei (¥)

6430

270,060

14.8

23.0

26.3

25.3

4.2

13.8

15.1

14.2

0.9

Corus Ent (CA$)

3.05

621

-42.7

3.6

4.7

4.4

1.4

3.9

4.6

4.7

5.7

6.8

6.9

7.9

Spin Master (US$)

22.43

2,997

-25.4

24.9

60.0

22.6

1.4

10.3

14.3

9.4

15.8

31.1

14.9

0.0

Amuse (¥)

2473

46,056

-17.8

14.2

26.3

0.4

49.1

7.0

15.8

31.1

14.9

0.0

Average

-8.5

19.2

32.3

20.1

2.7

10.0

17.0

8.8

16.1

26.5

16.8

1.3

Median

-10.2

19.4

26.8

24.0

1.4

10.5

14.3

9.4

15.8

18.0

14.9

0.0

Mondo TV (€)

1.82

66

-27.9

16.2

12.9

12.5

2.1

2.9

2.4

2.1

7.4

5.4

4.8

0.0

Discount to median

17%

52%

48%

-50%

72%

83%

78%

53%

70%

68%

Source: Refinitiv, Edison Investment Research. Note: Priced at 10 September 2020.

These share price moves have widened the P/E and EV/EBIT discounts. This therefore increases the implied share price for Mondo TV to reach parity on averaged earnings multiples across FY19–21e to €3.43/share from €2.96 in May. We would expect Mondo’s valuation discount to start to close as the financial benefit of recent deals flows through to the revenue line.

Exhibit 3: Financial summary

€m

2017

2018

2019

2020e

2021e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

32.0

18.9

23.1

28.6

32.0

Cost of Sales

(8.3)

(7.7)

(6.6)

(8.7)

(8.9)

Gross Profit

23.7

11.2

16.4

20.0

23.2

EBITDA

 

23.7

11.2

16.4

20.0

23.2

Operating Profit (before amort. and except.)

 

17.6

(30.6)

6.5

9.0

10.1

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

(23.9)

(0.2)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

Reported operating profit

17.6

(54.5)

6.3

9.0

10.1

Net Interest

(2.2)

0.5

(0.3)

(0.4)

(0.9)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

15.4

(30.1)

6.2

8.5

9.2

Profit Before Tax (reported)

 

15.4

(54.0)

6.0

8.5

9.2

Reported tax

(3.1)

11.5

(2.1)

(2.4)

(2.6)

Profit After Tax (norm)

12.3

(22.0)

4.1

6.2

6.6

Profit After Tax (reported)

12.3

(42.5)

3.9

6.2

6.6

Minority interests

0.5

3.0

(0.1)

(1.0)

(1.3)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

12.8

(19.0)

4.0

5.1

5.3

Net income (reported)

12.8

(39.5)

3.8

5.1

5.3

Average Number of Shares Outstanding (m)

30

34

35

36

36

EPS - normalised (c)

 

43.0

(56.3)

11.3

14.1

14.6

EPS - normalised fully diluted (c)

 

43.0

(56.3)

11.3

14.1

14.6

EPS - (c)

 

43.0

(117.0)

10.8

14.1

14.6

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Revenue growth (%)

16.8

(40.9)

21.9

24.2

11.8

Gross Margin (%)

74.0

59.2

71.3

69.7

72.3

EBITDA Margin (%)

74.0

59.2

71.3

69.7

72.3

Normalised Operating Margin

54.9

(162.0)

28.2

31.3

31.4

BALANCE SHEET

Fixed Assets

 

47.9

46.0

50.5

51.5

50.1

Intangible Assets

44.1

30.9

35.8

36.5

35.0

Tangible Assets

0.4

0.4

1.6

1.9

1.9

Investments & other

3.4

14.7

13.1

13.1

13.1

Current Assets

 

53.6

37.2

35.7

56.2

66.2

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

47.9

20.6

24.9

30.9

35.2

Cash & cash equivalents

2.4

12.5

8.0

22.5

28.2

Other

3.3

4.2

2.9

2.8

2.8

Current Liabilities

 

(22.6)

(25.2)

(19.9)

(24.8)

(27.0)

Creditors

(15.0)

(21.6)

(13.8)

(18.4)

(20.7)

Tax and social security

(0.4)

(0.5)

(0.8)

(0.8)

(0.8)

Short term borrowings

(3.6)

(3.0)

(5.3)

(5.5)

(5.5)

Other

(3.7)

(0.1)

(0.0)

(0.0)

(0.0)

Long Term Liabilities

 

(1.2)

(1.9)

(4.7)

(15.0)

(15.0)

Long term borrowings

(0.7)

(1.3)

(4.1)

(14.4)

(14.4)

Other long-term liabilities

(0.5)

(0.6)

(0.6)

(0.6)

(0.6)

Net Assets

 

77.7

56.1

61.6

67.9

74.3

Minority interests

(0.6)

2.1

(1.2)

1.0

1.4

Shareholders' equity

 

77.1

58.2

60.4

69.0

75.7

CASH FLOW

Op Cash Flow before WC and tax

23.7

11.2

16.4

20.0

23.2

Working capital

(11.2)

6.0

(10.6)

(1.3)

(2.1)

Exceptional & other

(0.8)

(11.0)

1.4

0.0

(0.9)

Tax

(3.1)

11.5

(2.1)

(2.4)

(2.6)

Operating cash flow

 

8.7

17.6

5.1

16.2

17.6

Capex

(19.2)

(28.6)

(14.2)

(11.1)

(11.1)

Acquisitions/disposals

0.0

0.0

(0.1)

0.0

0.0

Net interest

(0.2)

0.0

2.9

(0.4)

(0.9)

Equity financing

9.4

20.9

1.8

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.1

0.0

0.0

0.0

0.0

Net Cash Flow

(1.2)

10.0

(4.5)

4.7

5.7

Opening net debt/(cash)

 

0.9

2.0

(8.0)

1.4

(3.0)

FX

0.1

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

(4.9)

(0.3)

0.0

Closing net debt/(cash)

 

2.0

(8.0)

1.4

(3.0)

(8.7)

Source: Company accounts, Edison Investment Research

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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

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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