Strong second half performance

Entertainment One 31 March 2017 Update
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Entertainment One

Strong second half performance

Trading update

Media

31 March 2017

Price

229.4p

Market cap

£977m

Net debt (£m) September 2016

263

Production finance (£m) September 2016

138

Shares in issue

425.9m

Free float

68%

Code

ETO

Primary exchange

LSE (FTSE 250)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.0)

0.8

50.9

Rel (local)

(4.4)

(3.0)

26.3

52-week high/low

255.0p

143.0p

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

FY17 results

23 May

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

A strong performance from Television and Family and continued recovery at the Box Office in Film put eOne on track to deliver strong growth in reported revenues and underlying EBITDA in FY17, as expected. The divisional mix may be weighted more towards Television than we had forecast but overall, we do not make any changes to our estimates.

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

785.8

107.3

88.8

20.8

1.1

11.0

0.5

03/16

802.7

129.1

104.1

19.4

1.2

11.8

0.5

03/17e

1,003.1

157.0

126.7

20.0

1.3

11.5

0.6

03/18e

1,093.9

178.0

149.4

23.7

1.4

9.7

0.6

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

FY17 performance in line

eOne’s trading update points to strong growth in reported revenues and underlying EBITDA, underpinned by an excellent half for Television, strong growth in Family and an improved second half performance in Film, as expected. Net debt is expected to be 1.2-1.3x EBITDA, slightly higher than previously guided (1.1-1.2x).

Television and Family very strong, Film recovers

Television revenues have almost doubled (we forecast a 54% increase) with scripted productions strong at eOne Television and The Mark Gordon Company (MGC) also generating a significant increase in revenues following the success of Designated Survivor. In Family, revenues and EBITDA have increased by at least 25% (in line with our forecast), buoyed by the performance of Peppa Pig, particularly in the US, as well as a strong performance by PJ Masks, where momentum remains strong. The H117 Box Office recovery in eOne’s Film business continued into H217 with titles including The Girl on a Train, Arrival and La La Land. As expected, EBITDA margins in Film, which were affected in H117 by up-front costs associated with a film’s initial release, recovered in H217 putting Film EBITDA on track to match FY16. Going into FY18 the pipeline looks solid (Spielberg’s The Post, Sorkin’s Molly’s Game) in Film but also at MGC which has four high profile films in production. While the business mix looks likely to have a stronger weighting towards Television than we have forecast, overall we do not anticipate any material changes to our EBITDA forecasts.

Valuation: Better structure and performance

eOne has made considerable progress in delivering on its strategy to become a more balanced content group. While Film may remain the more volatile element, the stronger FY17 Box Office performance should help it offset some of the headwinds faced in the home entertainment market. Meanwhile, the investments made into Television and Family should underpin a more consistent growth profile. The FY18 EV/EBITDA of 8.3x (adjusted for minorities) is at a 33% discount to its closest US peer (Lionsgate) and we see considerable scope for this ratings gap to narrow.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

823.0

785.8

802.7

1,003.1

1,093.9

Cost of Sales

(642.3)

(578.0)

(610.1)

(762.4)

(831.4)

Gross Profit

180.7

207.8

192.6

240.8

262.5

EBITDA

92.8

107.3

129.1

157.0

178.0

Operating Profit

90.2

103.6

124.7

151.7

172.2

Amortisation of intangibles

(36.0)

(22.2)

(27.4)

(33.0)

(30.0)

Exceptional items

(22.1)

(17.9)

(16.6)

(7.5)

0.0

Share based payment charge

(2.7)

(3.4)

(5.7)

(4.0)

(4.0)

JV tax, finance costs, dep'n

0.0

0.1

(1.6)

0.0

0.0

Operating Profit

29.4

60.2

73.4

107.2

138.2

Net Interest

(11.8)

(14.8)

(20.6)

(25.0)

(22.9)

Exceptional finance items

3.9

(1.4)

(6.5)

0.0

0.0

Profit Before Tax (norm)

78.4

88.8

104.1

126.7

149.4

Profit Before Tax (FRS 3)

21.5

44.0

47.9

82.2

115.4

Tax (reported)

(1.5)

(2.7)

(7.7)

(16.4)

(23.1)

Tax (adjustment for normalised earnings)

(18.4)

(16.8)

(16.2)

(12.2)

(10.5)

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

58.5

69.3

80.2

98.1

115.8

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

20.0

41.2

40.2

65.8

92.3

Non-controlling interests

0.0

0.0

(4.2)

(12.6)

(14.0)

Average number of shares outstanding (m)

318.7

332.9

379.1

427.3

429.4

EPS - normalised (p)

18.4

20.8

19.4

20.0

23.7

EPS - FRS 3 (p)

5.5

12.7

9.8

12.6

18.5

Dividend per share (p)

1.0

1.1

1.2

1.3

1.4

Gross Margin (%)

22.0

26.4

24.0

24.0

24.0

EBITDA Margin (%)

11.3

13.7

16.1

15.7

16.3

Operating Margin (before GW and except) (%)

11.0

13.2

15.5

15.1

15.7

BALANCE SHEET

Non-current Assets

366.0

538.4

890.7

927.8

915.5

Intangible Assets (incl Investment in programmes)

343.1

473.9

808.2

846.4

835.5

Tangible Assets

5.5

6.1

60.1

64.8

70.0

Deferred tax/Investments

17.4

58.4

22.4

16.6

10.1

Current Assets

559.9

634.3

752.0

770.4

842.1

Stocks

47.2

52.0

51.1

51.1

51.1

Investment in content rights

230.1

221.1

241.3

267.9

282.3

Debtors

243.7

289.9

351.3

401.4

458.7

Cash

38.9

71.3

108.3

50.0

50.0

Current Liabilities

(449.2)

(488.3)

(568.7)

(565.1)

(561.0)

Creditors

(401.1)

(398.7)

(470.7)

(467.1)

(463.0)

Short term borrowings

(48.1)

(89.6)

(98.0)

(98.0)

(98.0)

Long Term Liabilities

(168.6)

(319.6)

(413.6)

(415.6)

(396.8)

Long term borrowings

(155.9)

(295.9)

(309.1)

(311.1)

(292.3)

Other long term liabilities

(12.7)

(23.7)

(104.5)

(104.5)

(104.5)

Net Assets

308.1

364.8

660.4

717.6

799.9

CASH FLOW

Operating Cash Flow

264.2

271.9

320.3

480.3

586.4

Net Interest

(10.7)

(13.4)

(31.0)

(25.0)

(22.9)

Tax

(5.9)

(10.8)

(17.7)

(20.0)

(27.7)

Capex

(4.2)

(4.8)

(8.6)

(10.0)

(11.0)

Acquisitions/disposals

(6.1)

(104.3)

(226.0)

(5.2)

0.0

Investment in content rights and TV programmes

(281.4)

(280.8)

(218.5)

(475.0)

(500.0)

Proceeds on issue of shares

0.0

0.0

194.6

0.0

0.0

Dividends

0.0

(2.9)

(4.0)

(5.3)

(6.0)

Net Cash Flow

(44.1)

(145.1)

9.1

(60.3)

18.8

Opening net debt/(cash)

144.5

165.1

314.2

298.8

359.1

Movements in exchangeable notes

0.0

0.0

0.0

0.0

0.0

Other including forex

23.5

(4.0)

6.3

0.0

0.0

Closing IFRS debt/(cash)

165.1

314.2

298.8

359.1

340.3

ANALYSIS OF NET DEBT

Production finance

54.0

89.3

118.0

189.8

215.2

Net debt

111.1

224.9

180.8

169.3

125.1

Source: Historic – Entertainment One, Forecast – Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Entertainment One and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Entertainment One and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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