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artnet — Update 25 August 2016

artnet — Update 25 August 2016

artnet

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

artnet

Advertising growth remains key

Six-month report

Retail

25 August 2016

Price

€2.35

Market cap

€13m

US$0.90:€1.00

Net cash (€m) at June 2016r

0.9

Shares in issue

5.6m

Free float

49%

Code

ART

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

(13.1)

(17.0)

26.8

Rel (local)

(17.0)

(21.4)

15.2

52-week high/low

€3.29

€1.75

Business description

artnet is an online business offering an integrated range of information and transaction services in the fine art, design and decorative art markets. It has four segments: Price Database, Galleries, Auctions and News.

Next events

Q3 results

11 November 2016

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

artnet is a research client of Edison Investment Research Limited

H116 group revenues were slightly ahead of the prior year in both US dollar and euro terms, helped by continued growth in artnet News, where revenues were up 17% despite weaker Q2 advertising performance. Reduced losses from Auctions and the benefit of lower costs within the Price Database segment helped drive an 11% uplift in group contribution margin, partially offset by increased central expenses. Stronger operating cash flow drove higher net cash, which at end June was €0.9m, from €0.5m at the year-end. Our FY16e and FY17e forecasts are unchanged.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

13.9

(0.1)

(6.3)

0.0

N/A

N/A

12/15

17.3

0.9

15.7

0.0

15.0

N/A

12/16e

18.4

1.4

18.5

0.0

12.7

N/A

12/17e

19.8

1.9

23.7

0.0

9.9

N/A

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

Mixed market, but online growth strong

The art market had a mixed start to 2016, with a resurgence in Chinese interest and activity but a sharp downturn in investment in the US. The latest survey from ArtTactic shows some recovery in expectations in the US and Europe, but with a wide divergence of views. The continuing positive trajectory of the online segment is not in doubt. While the overall art market declined in 2015, online sales grew 24% to US$3.3bn as behavioural barriers kept coming down, with Hiscox/ArtTactic suggesting this section of the market could grow to US$9.6bn by 2020. This rate of growth is in line with projections for growth in other online luxury segments.

Forecast progress for FY16

Our FY16e numbers are consistent with company guidance for revenues of €18-19m and post-tax profits of €0.9-1.2m, based on current exchange rates (also unchanged from our previous report). This scenario assumes little change in the underlying revenues from the Price Database or the Gallery Network segment, with growth coming primarily from increased advertising (albeit that the Q216 advertising revenues were notably softer than expected) and from Auction House Partnerships. June’s revamp of artnet News in should drive more traffic (and thereby advertising revenues), while a new pricing structure and additional products should help drive an improved result from Price Database into FY17.

Valuation: Remains well below peers

Online e-commerce and web content businesses are currently valued at 1.8x trailing 12-month (TTM) EV/revenues and 22x TTM EV/EBITDA. Quoted art segment stocks trade on a slightly higher revenue multiple at 2.1x, but sharply lower EV/EBITDA of 13.1x, reflecting the market’s view on the quality of their earnings. artnet’s share price sits at a further discount, on 9.7x EV/EBITDA, partly reflecting uncertainty over the likely resolution of the French copyright dispute.

Advertising to pick up in H216

While overall forecasts for the year are unchanged, the mix in the first half-year figures diverged from our model due to a weaker advertising performance in Q216, where revenues fell 22% year-on-year. Revenue and contribution margin by segment are shown in the exhibits below.

Exhibit 1: Half-yearly revenue

Exhibit 2: Half-yearly contribution margin

Source: Company accounts

Source: Company accounts

Exhibit 1: Half-yearly revenue

Source: Company accounts

Exhibit 2: Half-yearly contribution margin

Source: Company accounts

artnet Price Database remains the largest segment by revenue and contribution. A strong Q216, +4% year-on-year, showed the first benefits of a new email drive, while prospects for the second half are helped by subscription price increases, for more tailored packages and increased added value. Investment is also being made into the Analytics Reports to improve their market traction. Advertising revenues within the segment were down. The Galleries segment showed a small (2%) revenue decline, reflecting fewer memberships in the previous period, although the figure has now started to climb again. A new Gallery Network portal is scheduled for H216, which should help recruitment in a sector that the latest ArtTactic report has identified as being increasingly willing to use online channels. Auction House Partnerships are also steadily gaining ground.

The Auctions segment had a busier first half than last year in terms of the number of lots sold, but at lower prices than the comparative period (on stable Buyers’ and Sellers’ premiums). A new consignment strategy has been put in place to help lift the value of individual lots, while investment continues in building up the team in anticipation of growing revenues. The FY16e outturn for News will be weighted, as normal, to Q4, as advertising revenues pick-up in the run-up to Christmas. The content continues to drive traffic, now running at a monthly average of 2.2 million visitors, with the revamp in June designed to pick up more on trending topics which in turn should attract more affiliates to the site.

Sales expenses were up 17% year-on-year but marketing costs were curtailed, giving an overall reduction of 6% while general and administrative expenses increased 7%. Product development also ticked back 5%, partly due to timing.

Our unchanged FY16e numbers show a top line increase of 6%, with an increasing weighting towards advertising in the mix, along with good control of costs, helping EBITDA move ahead by 44%, with further progress in FY17e

Ongoing court proceedings

The group continues to seek legal remedies regarding the alleged copyright infringement in France, where the Court of Cassation rejected artnet’s appeal on a procedural point in a pre-trial hearing. The same case was rejected by the German courts in May 2016, leading to the release of a €150k provision in the half-year accounts. Management’s view is that the amount now provided (€0.8m) remains sufficient to cover the possible penalty and associated costs in France, but that no payment is likely in 2016.

Exhibit 3: Financial summary

€m

2014

2015

2016e

2017e

31-December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

13.91

17.28

18.36

19.83

Cost of Sales

(5.57)

(5.96)

(6.09)

(6.48)

Gross Profit

8.34

11.32

12.27

13.35

EBITDA

 

 

0.25

1.19

1.71

2.18

Operating Profit (before amort. and except.)

 

 

0.06

0.94

1.47

1.94

Intangible Amortisation

(0.65)

(0.23)

(0.23)

(0.23)

Exceptionals

(1.49)

0.00

0.00

0.00

Other

0.00

0.00

0.00

0.00

Operating Profit

(2.08)

0.71

1.24

1.71

Net Interest

(0.12)

(0.04)

(0.02)

(0.00)

Profit Before Tax (norm)

 

 

(0.06)

0.91

1.44

1.94

Profit Before Tax (IFRS)

 

 

(2.20)

0.67

1.21

1.71

Tax

(0.84)

(0.03)

(0.41)

(0.62)

Profit After Tax (norm)

(0.90)

0.87

1.03

1.32

Profit After Tax (FRS 3)

(3.04)

0.64

0.80

1.09

Average Number of Shares Outstanding (m)

5.55

5.55

5.55

5.55

EPS - normalised fully diluted (c)

 

 

(6.3)

15.7

18.5

23.7

EPS - (IFRS) (c)

 

 

(54.7)

11.5

14.4

19.6

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

60%

66%

67%

67%

EBITDA Margin (%)

2%

7%

9%

11%

Operating Margin (before GW and except.) (%)

0%

5%

8%

10%

BALANCE SHEET

Fixed Assets

 

 

2.33

2.33

2.23

2.05

Intangible Assets

0.65

0.51

0.60

0.61

Tangible Assets

1.36

1.46

1.27

1.08

Investments

0.32

0.36

0.36

0.36

Current Assets

 

 

2.29

2.66

2.95

3.75

Stocks

0.00

0.00

0.00

0.00

Debtors

0.82

1.27

1.36

1.47

Cash

1.18

0.99

1.20

1.89

Other

0.29

0.39

0.39

0.39

Current Liabilities

 

 

(4.30)

(3.90)

(3.89)

(3.92)

Creditors

(3.81)

(3.49)

(3.64)

(3.80)

Short term borrowings

(0.49)

(0.41)

(0.25)

(0.12)

Long Term Liabilities

 

 

(0.56)

(0.39)

(0.39)

(0.39)

Long term borrowings

(0.25)

(0.07)

(0.07)

(0.07)

Other long term liabilities

(0.31)

(0.32)

(0.32)

(0.32)

Net Assets

 

 

(0.22)

0.69

0.89

1.49

CASH FLOW

Operating Cash Flow

 

 

(0.05)

0.21

0.81

1.38

Net Interest

(0.05)

(0.01)

(0.02)

(0.00)

Tax

(0.01)

(0.02)

(0.37)

(0.56)

Capex

(0.17)

(0.03)

(0.05)

(0.05)

Acquisitions/disposals

0.00

0.00

0.00

0.00

Other

(0.10)

0.01

0.00

0.00

Dividends

0.00

0.00

0.00

0.00

Net Cash Flow

(0.38)

0.16

0.37

0.77

Opening net debt/(cash)

 

 

(0.59)

(0.45)

(0.50)

(0.87)

HP finance leases initiated

0.23

0.00

0.00

0.00

Other

0.00

(0.10)

0.00

0.06

Closing net debt/(cash)

 

 

(0.45)

(0.50)

(0.87)

(1.70)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by artnet 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 2016. “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.

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by artnet 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Healthcare

Onxeo — Update 23 August 2016

Onxeo

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