Nothing unscripted about Whizz Kid acquisition

Entertainment One 9 April 2018 Update
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Entertainment One

Nothing unscripted about Whizz Kid acquisition

Acquisition

Media

9 April 2018

Price

277p

Market cap

£1,274m

Net debt (£m) at 30 September 2017

313

Shares in issue

460m

Free float

90%

Code

ETO

Primary exchange

LSE (FTSE 250)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.4)

(15.9)

16.5

Rel (local)

(4.6)

(9.7)

17.5

52-week high/low

329.4p

216.0p

Business description

Entertainment One is a leading international entertainment company that sources, selects and sells films and television content. Its library contains over 40,000 film and TV titles, 4,500 half-hours of TV programming and 45,000 music tracks.

Next events

FY18 results

May 2018

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

eOne’s bolt on acquisition of Whizz Kid in the UK further builds on its expanding capabilities in the non-scripted television production segment. The £6.9m consideration paid for a 70% interest will be part funded utilising some of the excess proceeds of the recent placing and shares.

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

14.3

0.4

03/17

1082.7

160.2

129.9

20.0

1.3

13.9

0.5

03/18e

1076.1

175.1

145.7

22.1

1.4

12.5

0.5

03/19e

1172.1

196.6

160.6

24.5

1.5

11.3

0.5

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

Whizz kid: Non-scripted television production

eOne has acquired a 70% stake in Whizz Kid Entertainment, a UK-based production company specialising in non-scripted television formats such as Ex on the Beach (9 series - MTV US) and Lip Sync Battle UK (Channel 5). Founded in 2006, Whizz Kid reported revenues of £14.2m for the year to March 2017 and EBITDA of £1.6m. Of the £6.9m acquisition price, eOne will pay £5m in cash, drawing on the recent fund raising, and the balance via the issuance of c 638k eOne shares. The deal is expected to complete by 12 April. A put and call arrangement has been put in place for the company to acquire the remaining 30% after a five-year period. The founding partners of Whizz Kid will continue to lead the division.

On strategy: Expands UK capabilities

eOne has been expanding its capabilities in non-scripted programming over the last few years with the acquisitions of Paperny Entertainment Group and Force Four in 2014 followed by Renegade 83 in 2016. The acquisition of Whizz Kid provides eOne with a stronger footing in the UK, an important creative hub for non-scripted entertainment. Along with the production capabilities acquired, eOne has also entered into a distribution agreement with Whizz Kid. In our view, the 6.2x FY17 EBITDA multiple looks reasonable and the deal is in line with eOne’s strategy to build its production and distribution capabilities across a range of content genres.

Valuation: Sticking to script

At the earnings level, we do not expect a material change to forecasts which we will update at the time of the FY18 results in May. While the acquisition is relatively small in the wider context of the group, eOne continues to diligently execute its buy-and-build strategy to create a leading diversified content business. The recent trading update provides comfort regarding FY18 results and the pipeline for the year ahead. On 8.4x FY19e (to March) EV/EBITDA, we believe the shares offer good value compared to peers which trade at a c 25% premium.

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

1,076.1

1,172.1

Cost of Sales

(578.0)

(610.1)

(822.9)

(817.9)

(890.8)

Gross Profit

207.8

192.6

259.8

258.3

281.3

EBITDA

107.3

129.1

160.2

175.1

196.6

Operating Profit

103.6

124.7

155.3

169.6

190.1

Amortisation of intangibles

(22.2)

(27.4)

(41.9)

(40.0)

(40.0)

Exceptional items

(17.9)

(16.6)

(47.1)

(3.3)

(2.5)

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

121.3

142.6

Net Interest

(14.8)

(20.6)

(25.4)

(23.9)

(29.5)

Exceptional finance items

(1.4)

(6.5)

1.3

(11.8)

0.0

Profit Before Tax (norm)

88.8

104.1

129.9

145.7

160.6

Profit Before Tax (FRS 3)

44.0

47.9

37.2

85.6

113.1

Tax (reported)

(2.7)

(7.7)

(12.3)

(18.8)

(26.0)

Tax (adjustment for normalised earnings)

(16.8)

(16.8)

(16.1)

(13.2)

(10.9)

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

69.3

79.6

101.5

113.7

123.7

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

41.2

40.2

24.9

66.8

87.1

Non-controlling interests

0.0

(3.7)

(11.9)

(16.5)

(9.4)

Average Number of Shares, Diluted (m)

332.9

379.8

433.4

440.0

466.4

EPS - normalised (p)

20.8

19.4

20.0

22.1

24.5

EPS - FRS 3 (p)

12.7

9.8

3.0

11.6

16.8

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

16.3

16.8

Operating Margin (before GW and except) (%)

13.2

15.5

14.3

15.8

16.2

BALANCE SHEET

10%

11%

Non-current Assets

538.4

890.7

972.7

1,094.3

1,082.5

Intangible Assets (incl Investment in programmes)

473.9

808.2

870.6

993.7

978.4

Tangible Assets

6.1

60.1

72.8

78.3

81.8

Deferred tax/Investments

58.4

22.4

29.3

22.3

22.3

Current Assets

634.3

752.0

928.3

917.8

989.0

Stocks

52.0

51.1

48.6

48.6

48.6

Investment in content rights

221.1

241.3

269.8

297.8

302.4

Debtors

289.9

351.3

476.5

496.4

563.0

Cash

71.3

108.3

133.4

75.0

75.0

Current Liabilities

(488.3)

(568.7)

(679.4)

(637.8)

(636.2)

Creditors

(398.7)

(470.7)

(574.6)

(533.0)

(531.4)

Short term borrowings

(89.6)

(98.0)

(104.8)

(104.8)

(104.8)

Long Term Liabilities

(319.6)

(413.6)

(464.6)

(550.4)

(540.4)

Long term borrowings

(295.9)

(309.1)

(368.3)

(454.1)

(444.1)

Other long term liabilities

(23.7)

(104.5)

(96.3)

(96.3)

(96.3)

Net Assets

364.8

660.4

757.0

823.8

894.9

CASH FLOW

Operating Cash Flow

271.9

320.1

438.4

477.2

621.8

Net Interest

(13.4)

(31.0)

(25.0)

(23.9)

(29.5)

Tax

(10.8)

(17.7)

(18.4)

(22.6)

(31.2)

Capex

(4.8)

(8.6)

(3.8)

(11.0)

(10.0)

Acquisitions/disposals

(104.3)

(226.0)

(7.5)

(134.0)

0.0

Investment in content rights and TV programmes

(280.8)

(218.5)

(408.1)

(473.0)

(530.0)

Proceeds on issue of shares

0.0

194.6

0.0

53.2

0.0

Dividends

(2.9)

(4.0)

(8.3)

(10.0)

(11.0)

Net Cash Flow

(145.1)

8.9

(32.7)

(144.1)

10.0

Opening net debt/(cash)

165.1

314.2

299.0

339.7

484.0

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

484.0

473.9

ANALYSIS OF NET DEBT

Production finance

89.3

118.0

152.3

183.8

204.3

Net debt

224.9

181.0

187.4

300.2

269.7

Source: Historics – eOne, Forecasts - Edison

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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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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