Future has delivered a very good set of FY18 numbers – better than the upgrades put in place with the September update. This came through both the acquisitions and the organic growth as the group leverages its platform, with Media showing organic growth of 40%. There is plenty still to go for and we have again raised our FY19 expectations and published indicative FY20e forecasts. The group now has scale in the important US market, accounting for nearly half of group revenues on a pro-forma basis. In our view, the valuation does not reflect the premium growth or expanding margins.
Future |
All systems go |
Full year figures |
Media |
23 November 2018 |
Share price performance
Business description
Next events
Analysts
Future is a research client of Edison Investment Research Limited |
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Future has delivered a very good set of FY18 numbers – better than the upgrades put in place with the September update. This came through both the acquisitions and the organic growth as the group leverages its platform, with Media showing organic growth of 40%. There is plenty still to go for and we have again raised our FY19 expectations and published indicative FY20e forecasts. The group now has scale in the important US market, accounting for nearly half of group revenues on a pro-forma basis. In our view, the valuation does not reflect the premium growth or expanding margins.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
EV/EBITDA (x) |
Yield |
09/17 |
84.4 |
8.3 |
17.5 |
0.0 |
27.6 |
37.1 |
0.0 |
09/18 |
124.6 |
17.4 |
24.0 |
0.5 |
20.1 |
19.7 |
0.1 |
09/19e |
176.0 |
29.3 |
26.9 |
2.0 |
17.9 |
12.1 |
0.4 |
09/20e |
179.0 |
32.4 |
30.4 |
3.0 |
15.9 |
11.5 |
0.6 |
Note: *PBT and EPS are normalised, diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong organic growth supplements acquisitions
Corporate activity played a significant role in FY18, with NewBay Media (April, £9.9m) and the larger Purch consumer deal (September, £99.1m), as well as the purchase of titles from Haymarket (£10.7m) and Next Media in Australia. The combined cost represented 1.2x the combined revenues. The first two have provided a major step up for Future in the US, with NewBay further broadening revenue streams in the B2B market. Management has built a strong reputation for integrating acquired businesses on time and on budget. This pace of activity should not overshadow the organic progress. This was 40% in the Media division (total revenue up 88%), now over half of the group. UK organic growth was 6% (including most of Magazines), whereas the US posted organic progress of 28%. EBITDA margins also expanded as the mix moved further to Media, growing from 13.0% to 16.6% (adjusted basis). We model further growth in FY19e and FY20e with full years of the acquisitions, more high-margin eCommerce revenue and a leveraging of the tech platform.
Cash flowing
Cash conversion in FY18 was 96% and the group’s ongoing capital requirements are relatively modest. September’s rights issue ensured the balance sheet stayed robust and net debt at the year-end was £17.8m; gearing of 10% and 0.8x FY18 EBITDA. Our model indicates the group returning to near net cash by end FY19e, bar further corporate activity.
Valuation: Plenty still in the tank
At 483p, Future’s shares are trading at around par to our blended peer set on an EV/EBITDA basis for FY19e, despite the considerable premium in the growth and expanding EBITDA margin. Looking at a DCF on unchanged assumptions of a conservative 7% medium-term, top-line growth and with the EBITDA margin growing to 23% (reflecting the shift in mix more towards Media), we derive an indicative valuation of 607p, 24% ahead of the current market level.
Strong FY18 warrants further upgrades
We upgraded our estimates with the year-end trading update in September (see note) and firmed up our forecasts including the Purch acquisition. The published FY18 EBITDA is 4% ahead of our September forecast, but the interest charge and (notably) the tax rate were also below the levels we had anticipated, hence a larger revision of our EPS number.
Given the way the business is developing and the speed of the improvement in the US, particularly in eCommerce and digital advertising, we have again lifted our forecasts for FY19e as shown below, and initiated forecasts for FY20e, which may well prove conservative. The current trading and outlook statement indicates that FY19 has started strongly and that Home Interest has now established itself as a ‘material operating vertical’. The Purch integration is expecting to be largely completed by the start of Q2 in the new year.
Exhibit 1: Summary forecast changes
EPS |
PBT |
EBITDA |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2018 |
19.9 |
24.0 |
+21 |
15.5 |
17.4 |
+12 |
20.0 |
20.7 |
+4 |
2019e |
24.8 |
26.9 |
+8 |
27.3 |
29.3 |
+7 |
31.8 |
33.8 |
+6 |
2020e |
- |
30.4 |
N/A |
- |
32.4 |
N/A |
- |
35.4 |
N/A |
Source: Company accounts, Edison Investment Research
Media power
|
Exhibit 2: Media segment components’ growth |
|
|
Source: Company accounts, Edison Investment Research |
The growth in the underlying segments is shown above. Although this includes the benefit of acquisitions, we would anticipate there is more to come, particularly as average revenue per user rises in the US market. This would be both in the digital advertising yields and in the eCommerce revenues generated, with greater potential for expansion in the US.
In Magazines, the underlying revenue decline was 8%, broadly in line with what we had anticipated, with the acquisitions lifting the overall revenue to an increase of 20%. The US magazine portfolio has been rationalised to focus on the brands with the most potential traction.
Exhibit 3: Financial summary
£'m |
2016 |
2017 |
2018 |
2019e |
2020e |
||
30 September |
IFRS |
IRFS |
IRFS |
IRFS |
IRFS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
59.0 |
84.4 |
124.6 |
176.0 |
179.0 |
Cost of Sales |
(16.0) |
(50.5) |
(69.3) |
(88.0) |
(87.0) |
||
Gross Profit |
43.0 |
33.9 |
55.3 |
88.0 |
91.9 |
||
EBITDA |
|
|
5.2 |
11.0 |
20.7 |
33.8 |
35.4 |
Operating Profit (before amort. and except.) |
|
2.8 |
8.9 |
18.5 |
30.8 |
32.4 |
|
Amortisation on acquired intangibles |
0.0 |
(2.3) |
(5.7) |
(14.8) |
(14.8) |
||
Exceptionals |
(16.5) |
(3.7) |
(4.4) |
(1.5) |
(1.5) |
||
Share-based payments |
(0.5) |
(2.1) |
(3.1) |
(4.0) |
(4.0) |
||
Reported operating profit |
(14.2) |
0.8 |
5.3 |
10.5 |
12.1 |
||
Net Interest |
(0.5) |
(0.6) |
(1.1) |
(1.5) |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
2.3 |
8.3 |
17.4 |
29.3 |
32.4 |
Profit Before Tax (reported) |
|
|
(14.9) |
0.2 |
4.2 |
9.0 |
12.1 |
Reported tax |
0.5 |
1.4 |
(1.5) |
(1.7) |
0.0 |
||
Profit after tax (norm) |
2.3 |
8.6 |
14.9 |
23.7 |
26.0 |
||
Profit after tax (reported) |
(14.4) |
1.6 |
2.7 |
7.3 |
12.1 |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
2.3 |
8.6 |
14.9 |
23.7 |
26.0 |
||
Net income (reported) |
(14.2) |
1.6 |
2.7 |
7.3 |
12.1 |
||
Average Number of Shares Outstanding (m) |
32 |
45 |
56.9 |
82 |
83 |
||
EPS - basic normalised (p) |
|
|
7.1 |
19.0 |
26.2 |
28.9 |
32.6 |
EPS - normalised, diluted (p) |
|
|
6.9 |
17.5 |
24.0 |
26.9 |
30.4 |
EPS - basic reported (p) |
|
|
(43.9) |
3.5 |
5.1 |
8.8 |
13.7 |
Dividend per share (p) |
0.0 |
0.0 |
0.5 |
2.0 |
3.0 |
||
Revenue growth (%) |
(1.3) |
43.1 |
47.6 |
41.3 |
1.7 |
||
Gross margin (%) |
72.9 |
40.2 |
44.4 |
50.0 |
51.4 |
||
EBITDA margin (%) |
8.8 |
13.0 |
16.6 |
19.2 |
19.8 |
||
Normalised operating margin (%) |
4.7 |
10.5 |
14.8 |
17.5 |
18.1 |
||
BALANCE SHEET |
|||||||
Fixed assets |
|
|
36.1 |
97.9 |
210.6 |
195.4 |
195.5 |
Intangible assets |
33.2 |
92.3 |
203.4 |
188.1 |
189.3 |
||
Tangible assets |
0.5 |
1.0 |
1.7 |
1.8 |
0.7 |
||
Investments & other |
2.4 |
4.4 |
5.3 |
5.3 |
5.3 |
||
Current assets |
|
|
15.8 |
24.5 |
44.1 |
65.0 |
85.3 |
Stocks |
0.4 |
0.7 |
0.0 |
0.0 |
0.0 |
||
Debtors |
12.4 |
13.6 |
37.6 |
44.1 |
44.9 |
||
Cash & cash equivalents |
2.9 |
10.1 |
6.4 |
20.7 |
40.4 |
||
Other |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
||
Current liabilities |
|
|
(25.1) |
(36.4) |
(58.0) |
(57.7) |
(58.7) |
Creditors |
(21.4) |
(29.9) |
(48.4) |
(49.4) |
(50.4) |
||
Tax and social security |
(1.4) |
(3.2) |
(1.1) |
(1.1) |
(1.1) |
||
Short-term borrowings |
(2.3) |
(3.2) |
(8.5) |
(7.2) |
(7.2) |
||
Other |
0.0 |
(0.1) |
0.0 |
0.0 |
0.0 |
||
Long-term liabilities |
|
|
(5.6) |
(24.7) |
(24.1) |
(17.4) |
(11.7) |
Long-term borrowings |
(0.1) |
(16.9) |
(15.7) |
(12.3) |
(8.9) |
||
Other long-term liabilities |
(5.5) |
(7.8) |
(8.4) |
(5.1) |
(2.8) |
||
Net assets |
|
|
21.2 |
61.3 |
172.6 |
185.3 |
210.5 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
21.2 |
61.3 |
172.6 |
185.3 |
210.5 |
CASH FLOW |
|||||||
Operating cash flow before WC and tax |
5.2 |
11.0 |
20.7 |
33.8 |
35.4 |
||
Working capital |
(2.1) |
4.7 |
(1.4) |
(5.6) |
0.3 |
||
Exceptional & other |
0.0 |
(3.7) |
(4.9) |
(1.5) |
(1.5) |
||
Tax |
(0.7) |
(1.4) |
(4.6) |
(5.0) |
(5.0) |
||
Net operating cash flow |
|
|
2.4 |
10.6 |
9.8 |
21.7 |
29.1 |
Capex |
(2.5) |
(2.6) |
(2.6) |
(2.6) |
(2.6) |
||
Acquisitions/disposals |
(0.3) |
(31.8) |
(119.6) |
0.0 |
0.0 |
||
Net interest |
(0.4) |
(0.6) |
(1.1) |
(1.5) |
(1.0) |
||
Equity financing |
3.1 |
21.0 |
102.3 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
(1.0) |
(2.5) |
||
Other |
(0.1) |
0.2 |
2.7 |
0.0 |
0.0 |
||
Net cash flow |
2.2 |
(3.2) |
(8.5) |
16.6 |
23.0 |
||
Opening net debt/(cash) |
|
|
1.8 |
(0.5) |
10.0 |
17.8 |
1.2 |
FX |
0.1 |
0.0 |
0.7 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
(7.3) |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(0.5) |
10.0 |
17.8 |
1.2 |
(21.9) |
Source: Company accounts, Edison Investment Research
|
|
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