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Research: TMT
Vantiva’s FY22 accounts show the first clear picture of the business post the spin-out of the majority of Technicolor Creative Studios (TCS). In the Connected Home (CH) segment, trading conditions remain demanding, with global macroeconomic uncertainty making network service providers (NSPs) wary. However, supply chain issues have been easing and technical enhancements continue to buoy end-user demand for domestic broadband, with additional opportunities opening in Internet of Things applications. In the smaller Supply Chain Solutions (SCS) segment, newer activities, such as vinyl pressing, present the more dynamic opportunities. The shares still sit well below their valuation on a DCF basis.
Vantiva |
Broadband remains the main growth driver |
FY22 accounts |
Technology hardware |
21 April 2023 |
Share price performance
Business description
Next events
Analyst
Vantiva is a research client of Edison Investment Research Limited |
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Vantiva’s FY22 accounts show the first clear picture of the business post the spin-out of the majority of Technicolor Creative Studios (TCS). In the Connected Home (CH) segment, trading conditions remain demanding, with global macroeconomic uncertainty making network service providers (NSPs) wary. However, supply chain issues have been easing and technical enhancements continue to buoy end-user demand for domestic broadband, with additional opportunities opening in Internet of Things applications. In the smaller Supply Chain Solutions (SCS) segment, newer activities, such as vinyl pressing, present the more dynamic opportunities. The shares still sit well below their valuation on a DCF basis.
Year |
Revenue |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
12/21 |
2.25 |
(126) |
(61) |
0 |
3.3 |
N/A |
12/22 |
2.78 |
(497) |
(197) |
0 |
2.1 |
N/A |
12/23e |
2.72 |
(16) |
(14) |
0 |
2.3 |
N/A |
12/24e |
2.75 |
(7) |
(8) |
0 |
2.1 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Exceeding tempered management guidance
Vantiva exceeded all its published key performance indicator (KPI) targets for FY22, with adjusted EBITDA, EBITA and free cash flow all well over earlier guidance. FY23 guidance has been maintained and should very much represent an underpinning of expectations rather than a target. We expect revenue to be slightly softer, given the business mix and some caution on ordering from the NSPs, reflected in our EBITDA forecast, with earnings benefiting from reduced interest.
Financing in place
At end FY22, Vantiva had IFRS net debt of €263m including lease liabilities (€197m without). The largest lenders are Barclays (€240m) and Angelo Gordon (€117m), maturing in September 2026 and March 2027, respectively. Covenants will be tested every six months initially. The first will be on 30 June 2023 and require total net debt to be 1.0–4.5x EBITDA. On 31 December 2022, this ratio was 1.66x. We would expect it to climb at the half year, given typically negative H1 cash flow and management’s indication of a likely working capital outflow for the year. Vantiva is to invest €10m in the TCS refinancing to protect the value of its residual holding.
Valuation: Below DCF indication
Earnings-based valuation is premature, given the Technicolor spin-out and current uncertain economic backdrop, and revenue-based metrics are inappropriate for the business. We have therefore run a discounted cash flow (DCF) based on modest sales and margin gains post the forecast period. Using a WACC of 10% and terminal growth of 1%, we derive a value of €0.57 per share, with the TCS shareholding worth an additional €0.06 per Vantiva share at current prices (prior to the intended further refinancing). At the time of our last report, these values were €0.56 and €0.14, respectively.
FY22 figures ahead of guidance
The FY22 results were released in summary in March and the full accounts have now followed, giving more detail in particular on the cash flow and balance sheet structure. A summary of the income statement by segment and with changes against the prior year is shown below.
Exhibit 1: Summary FY22 income statement
€m |
Connected Home |
% change |
Supply Chain Solutions |
% change |
Corporate & other |
Total |
% change |
Revenue |
2,120 |
+37 |
655 |
-7 |
1 |
2,776 |
+23 |
Adjusted EBITDA |
135 |
+31 |
56 |
-16 |
(30) |
161 |
+14 |
Depreciation & amortisation |
(67) |
(33) |
(3) |
(103) |
|||
Other non-cash items |
(1) |
0 |
(1) |
(2) |
|||
Adjusted EBITA |
67 |
+49 |
23 |
+17 |
(34) |
56 |
+44 |
Amortisation of purchase accounting items |
(24) |
(7) |
0 |
(31) |
|||
Net impairment losses on non-current operating assets |
(3) |
(1) |
() |
(5) |
|||
Restructuring costs |
(1) |
(12) |
(4) |
(17) |
|||
Other income (expenses) |
(4) |
(6) |
(2) |
(13) |
|||
EBIT (continuing operations) |
34 |
+209 |
(3) |
N/A |
(41) |
(11) |
N/A |
Source: Vantiva accounts
Connected Home benefits from strong broadband demand
There was an additional boost to revenue growth from currency moves, with growth at a constant rate of 23%, implying a good Q423 (9M23 constant growth was +20%). The mix shifted further towards broadband as demand for video product, especially entry level product, continued to drop away. Broadband made up 75% of revenues for the year. There was, however, pressure on margins from underlying inflation, resulting in a dip in EBITDA margin for the division from 6.7% to 6.3%.
Supply Chain Solutions restructuring completed
SCS retains its strong positioning with the major content studios for DVD production and distribution, with management estimating global market share at 65% (90% in the United States). Volumes were markedly down following the boost to the home media market during COVID-19 lockdowns in the comparative period, resulting in a constant currency revenue retrenchment of 14%. The moves into vinyl production were curtailed by delays in the delivery of specialist pressing equipment, though underlying demand remained good. The reduction in adjusted EBITDA margin from 9.5% to 8.6% reflects the benefit of earlier cost cutting.
Loss from associates
The net result from continuing operations was a loss of €529m. At the time of the TCS spin-out in September, its value was reflected in Vantiva’s balance sheet at the then initial fair value of €354m. Post TCS’s subsequent profit warning and the consequent drop in the share price, Vantiva wrote down the value of its holding by €311m on the year-end balance sheet, showing up as a loss from associates in the income statement.
FY23 circumspection built into estimates
Within CH, management’s view is that the NSPs are being especially cautious in light of an uncertain economic background and there is less-than-normal visibility over inventories. CH’s strong supplier relationships are undoubtedly helpful and the partnership-type mindset with the NSPs makes issues such as input price inflation more manageable. Technological advances should continue to stimulate demand and the group sees considerable potential as the Internet of Things for verticals gains ground (‘vertical’ being where the gateway and the cloud-based services are provided by the same organisation), with the number of smart connected devices in the home increasing.
For SCS, the key opportunities are in the diversification opportunities being developed, with a significant scaling up of vinyl-pressing capacity and the expansion of its activities in precision bio-devices, built on its expertise in precision clean-room manufacture. Management also anticipates continued growth in the distribution and logistics activities.
Exhibit 2: Adjustments to forecasts
Revenue (€bn) |
EBITDA (€m) |
PBT (€m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2022 |
2.70 |
2.78 |
+3% |
143 |
161 |
+13% |
(123) |
(497) |
N/A |
2023e |
2.84 |
2.72 |
-4% |
144 |
151 |
+5% |
(50) |
(16) |
N/A |
2024e |
2.99 |
2.75 |
-8% |
168 |
164 |
-2% |
(10) |
(7) |
N/A |
Source: Vantiva accounts, Edison Investment Research. Note: ‘Old’ is prior estimate.
We have trimmed our revenue estimates for both the current year and for FY24 to reflect management’s interpretation of current market conditions and doubtless there will be more commentary on this at the Q1 results later in the month. However, we are building in a small improvement to adjusted EBITDA margin to reflect the greater efficiency within the operations. PBT and earnings should benefit from the debt restructure, which significantly reduces the interest burden.
Official guidance was unchanged on the results: EBITDA greater than €140m, EBITA greater than €45m and free cash flow pre-interest and tax over €50m.
Debt structure and further investment in TCS
Vantiva retained a shareholding of 35% of TCS’s equity following the spin-off in FY22. Various trading issues mean that TCS is now seeking a further refinancing. As a major shareholder, Vantiva’s management has committed to a c €10m subscription (included in our modelling) in convertible notes, maturing in July 2026 and with a coupon of 0.75%, with a right to purchase up to €10m by way of acquisition on the secondary market of convertible notes held by Angelo Gordon within six months of the subscription date of the convertible notes (not included in our modelling). This investment sits alongside further investment by existing and new lenders, including Angelo Gordon, Barclays, BPI and Briarwood, and helps the viability of TCS and thus protects the original retained shareholding.
Barclays and Angelo Gordon are the key lenders
Exhibit 3: Debt structure at end FY22
Line |
Characteristics |
Ccy |
Nominal (m) |
IFRS (m) |
Nominal rate |
IFRS rate |
Maturity |
Notes |
|
Vantiva |
Barclays 1st Lien |
EURIBOR+2.5% margin & PIK |
€ |
250 |
240 |
7.5% |
11.8% |
Sep-26 |
PIK 3.0% year 1, then 4.0% year 2, 5.5% year 3, then +0.5% each year thereafter |
Vantiva |
Angelo Gordon 2nd Lien |
EURIBOR+4.0% |
€ |
125 |
117 |
11.0% |
16.1% |
Mar-27 |
PIK 5.0% year 1, then 5.5% year 2, then 6.0% |
Several |
Operating leases |
Various |
66 |
66 |
12.2% |
12.2% |
|||
Other |
Various |
Various |
8 |
8 |
|||||
Total |
448 |
430 |
9.1% |
12.8% |
|||||
Cash & equivalents |
167 |
167 |
|||||||
Net debt |
282 |
263 |
|||||||
Source: Vantiva
Both the Barclays and the Angelo Gordon credit agreements carry an exit fee, including on maturity, and have the option to extend by one year (subject to additional charges), with the exit fee included in the calculation of the IFRS interest rate in the table above.
Should cash flow exceed the needs of the business, mandatory partial repayment would be triggered on a tiered basis above a minimum of a total net leverage ratio of 1.7x. There are also a number of additional covenants attached to this financing that restrict management’s ability to take on additional debt or conduct M&A transactions of substance.
The Wells Fargo Asset-backed lending in the United States is for a total of $125m and was extended during H222 for a further four years to September 2026.
DCF illustrates upside potential
There remain substantive uncertainties regarding trading opportunities and challenges, but the most significant element – that of the financing – looks to have been resolved for a sufficiently long period for the group to concentrate on maximising its potential.
Exhibit 4: DCF at various WACC and terminal growth rates
€/share |
Terminal growth rate |
|||||
-1% |
0% |
1% |
2% |
3% |
||
WACC |
14% |
0.10 |
0.12 |
0.15 |
0.17 |
0.21 |
13% |
0.17 |
0.19 |
0.22 |
0.26 |
0.30 |
|
12% |
0.24 |
0.28 |
0.32 |
0.36 |
0.42 |
|
11% |
0.33 |
0.38 |
0.43 |
0.49 |
0.57 |
|
10% |
0.44 |
0.50 |
0.57 |
0.65 |
0.76 |
|
9% |
0.57 |
0.65 |
0.74 |
0.86 |
1.02 |
|
8% |
0.74 |
0.84 |
0.96 |
1.14 |
1.38 |
|
7% |
0.94 |
1.08 |
1.27 |
1.53 |
1.92 |
|
6% |
1.21 |
1.41 |
1.69 |
2.11 |
2.82 |
|
5% |
1.56 |
1.87 |
2.33 |
3.09 |
4.63 |
|
Source: Edison Investment Research
Based on our modelling through to FY24 and modest growth and margin assumptions thereafter, the DCF provides an illustrative valuation of €0.57/share at a WACC of 10% and terminal growth of 1%, as previously. This is more than double the current market price for the shares, which is, at least in part, a reflection of the continued dominance in the value of the debt within the enterprise value.
There is potentially a further uplift in implied value from the holding in the equity of TCS, which, on a pure mechanistic basis, would currently add another €0.06.
Exhibit 5: Financial summary
€m |
2021 |
2022 |
2023e |
2024e |
|||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
|||
INCOME STATEMENT |
|||||||
Revenue |
|
|
|
2,250 |
2,776 |
2,724 |
2,753 |
Cost of Sales |
(1,976) |
(2,439) |
(2,388) |
(2,394) |
|||
Gross Profit |
274 |
336 |
336 |
359 |
|||
EBITDA |
|
|
|
105 |
161 |
151 |
164 |
EBITA |
|
|
|
40 |
57 |
66 |
79 |
Amortisation of acquired intangibles |
(30) |
(28) |
(24) |
0 |
|||
Exceptionals |
27 |
20 |
(8) |
0 |
|||
Reported operating profit |
(13) |
(11) |
19 |
64 |
|||
Net Interest |
(117) |
(177) |
(67) |
(70) |
|||
Joint ventures & associates (post tax) |
0 |
(311) |
0 |
0 |
|||
Profit Before Tax (norm) |
|
|
|
(126) |
(497) |
(16) |
(7) |
Profit Before Tax (reported) |
|
|
|
(129) |
(499) |
(48) |
(7) |
Reported tax |
(14) |
(30) |
(36) |
(22) |
|||
Profit After Tax (norm) |
(143) |
(529) |
(52) |
(29) |
|||
Profit After Tax (reported) |
(143) |
(529) |
(84) |
(29) |
|||
Minority interests |
0 |
0 |
0 |
0 |
|||
Discontinued operations |
4 |
680 |
0 |
0 |
|||
Net income (normalised) |
(143) |
(529) |
(52) |
(29) |
|||
Net income (reported) |
(140) |
151 |
(84) |
(29) |
|||
Average Number of Shares Outstanding (m) |
236 |
269 |
355 |
355 |
|||
EPS - normalised (c) |
|
|
|
(61) |
(197) |
(14) |
(8) |
EPS - normalised fully diluted (c) |
|
|
|
(61) |
(197) |
(14) |
(8) |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
|||
Revenue growth (%) |
(9) |
23 |
(2) |
1 |
|||
Gross Margin (%) |
12.2 |
12.1 |
12.4 |
13.0 |
|||
EBITDA Margin (%) |
4.7 |
5.8 |
5.6 |
5.9 |
|||
EBITA Margin (%) |
1.8 |
2.0 |
2.4 |
2.9 |
|||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
|
1,730 |
1,053 |
1,004 |
989 |
Intangible Assets |
1,283 |
782 |
737 |
722 |
|||
Tangible Assets (including right of use assets) |
305 |
154 |
149 |
149 |
|||
Investments & other |
59 |
84 |
84 |
84 |
|||
Deferred tax and other |
83 |
34 |
34 |
34 |
|||
Current Assets |
|
|
|
1,268 |
1,290 |
1,205 |
1,197 |
Stocks |
335 |
452 |
455 |
425 |
|||
Debtors |
359 |
343 |
345 |
323 |
|||
Cash & cash equivalents |
196 |
167 |
76 |
120 |
|||
Other |
377 |
329 |
329 |
329 |
|||
Current Liabilities |
|
|
|
(1,360) |
(1,389) |
(1,348) |
(1,357) |
Creditors |
(671) |
(855) |
(839) |
(848) |
|||
Tax and social security |
(29) |
(18) |
(18) |
(18) |
|||
Short term borrowings |
(65) |
(24) |
(24) |
(24) |
|||
Other |
(594) |
(492) |
(467) |
(467) |
|||
Long Term Liabilities |
|
|
|
(1,505) |
(633) |
(625) |
(625) |
Long term borrowings (includes lease liabilities) |
(1,170) |
(407) |
(398) |
(398) |
|||
Deferred tax |
(20) |
(3) |
(3) |
(3) |
|||
Other long term liabilities |
(315) |
(224) |
(224) |
(224) |
|||
Net Assets |
|
|
|
134 |
320 |
236 |
204 |
Minority interests |
|||||||
Shareholders' equity |
|
|
|
134 |
320 |
236 |
205 |
CASH FLOW |
|||||||
Net profit |
(143) |
(529) |
(84) |
(29) |
|||
Depreciation and amortisation |
139 |
135 |
100 |
90 |
|||
Working capital |
(98) |
57 |
(21) |
62 |
|||
Tax and interest |
(70) |
(83) |
(75) |
(61) |
|||
Exceptional & other |
61 |
506 |
103 |
92 |
|||
Operating Cash Flow |
|
|
|
(111) |
86 |
24 |
154 |
Capex |
(69) |
(81) |
(75) |
(80) |
|||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
|||
Equity financing |
0 |
284 |
0 |
0 |
|||
Dividends |
0 |
0 |
0 |
0 |
|||
Other |
(33) |
(14) |
(40) |
(30) |
|||
Net Cash Flow |
(214) |
275 |
(91) |
44 |
|||
Opening net debt/(cash) |
|
|
|
812 |
1,039 |
263 |
346 |
FX |
16 |
(25) |
0 |
0 |
|||
Discontinued |
63 |
501 |
0 |
0 |
|||
Other non-cash movements |
(92) |
25 |
8 |
0 |
|||
Closing net debt/(cash) |
|
|
|
1,039 |
263 |
346 |
302 |
Source: Company accounts, Edison Investment Research
|
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Research: Real Estate
Foxtons Group’s Q1 trading update highlighted increased revenue per transaction and market share gains, evidence of early progress in rolling out the new strategy – characterised by upgrades to data infrastructure, investment in staff and a reinvigoration of the Foxtons brand. If the strategy succeeds, over the medium term Foxtons expects margins to expand by 500bp and operating profit to more than double. We retain our base case valuation of 59p/share and our preferred ‘bull’ case valuation of 124p/share, more than three times the current price.