Entertainment One — Trading update and library revaluation

Entertainment One — Trading update and library revaluation

Entertainment One’s trading update to 23 September (ie most of H1) does not disclose figures, due to the Hasbro bid. The group is heavily weighted to H2. Family & Brands achieved flat revenues against prior period, despite a difficult trading environment. Film, TV and Music (FTM) revenues were slightly behind, with a strong music performance offset by unflattering comparatives in film and TV due to timing and mix. The independent library revaluation was $2.1bn at end March (2018: $2.0bn). The acquisition agreement with Hasbro, for 560p per share cash, is to be put to share-holders on 17 October, with the circular now available. Approval requires two-thirds of votes cast to be in favour. Our forecasts are withdrawn.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Entertainment One

Trading update and library revaluation

Trading update/circular

Media

24 September 2019

Price

574p

Market cap

£2,852m

£1:$1.24

Net debt (£m) at 31 March 2019 including production finance

433.2

Shares in issue

496.9m

Free float

95.4%

Code

ETO

Primary exchange

LSE (FTSE 250)

Secondary exchange

N/A

Share price performance

Business description

Entertainment One is a global independent studio specialising in the development, acquisition, production, financing, distribution and sales of entertainment content. Its rights library, valued at US$2.1bn, is exploited across all media formats, and includes more than 80,000 hours of film and television content and approximately 40,000 music tracks.

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

Entertainment One is a research client of Edison Investment Research Limited

Entertainment One’s trading update to 23 September (ie most of H1) does not disclose figures, due to the Hasbro bid. The group is heavily weighted to H2. Family & Brands achieved flat revenues against prior period, despite a difficult trading environment. Film, TV and Music (FTM) revenues were slightly behind, with a strong music performance offset by unflattering comparatives in film and TV due to timing and mix. The independent library revaluation was $2.1bn at end March (2018: $2.0bn). The acquisition agreement with Hasbro, for 560p per share cash, is to be put to share-holders on 17 October, with the circular now available. Approval requires two-thirds of votes cast to be in favour. Our forecasts are withdrawn.

Year end

Revenue
(£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/18

1,029

163.6

124.2

19.3

1.4

29.7

0.2

03/19

941

197.6

160.0

25.0

1.5

23.0

0.3

03/20e

N/A

N/A

N/A

N/A

N/A

N/A

N/A

03/21e

N/A

N/A

N/A

N/A

N/A

N/A

N/A

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

Peppa Pig continues to increase its traction across different media and territories. Good progress is being made in China, where 117 new episodes are set to air by 2023. New toy products are being launched with partner Alpha and licensed products across other categories, such as food and beverage, publishing, furniture and kitchenware are scheduled to roll out over the year. Visitor attractions based on the property are attracting increasing numbers. PJ Masks has been building its presence in key markets ahead of the important retail season. Ricky Zoom has launched successfully in China, with roll out in other key markets imminent.

There is no quantification of the decline in FTM revenues, described as ‘slight’ and stemming from timing and mix in Film and TV. Music is growing very strongly, adding in new revenue streams from publishing and artist management, live touring and music creation for Film and TV (a key benefit from being within eOne).

The library revaluation of $2.1bn would have been $0.1bn higher at last year’s exchange rates. This equates to c 75% of the current group market valuation.

General disclaimer and copyright

This report has been commissioned by Entertainment One and prepared and issued by Edison, in consideration of a fee payable by Entertainment One. 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.

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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

1,185 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

1,185 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 Entertainment One and prepared and issued by Edison, in consideration of a fee payable by Entertainment One. 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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

Destiny Pharma — Careful resourcing, supportive environment

Results for the US Phase IIb clinical study have been delayed by a quarter to mid-2020, so investors’ attention will now turn to the YE19 study update. However, Destiny’s H119 results showed continuing prudent management and targeted resourcing of the clinical programme, with grant income and a regulatory backdrop that supports novel antimicrobial development.

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