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Research: TMT
With its complex financial restructuring complete, Technicolor can now move forward secure in the knowledge of a supportive equity- and debt-holder base. With US Chapter 15 proceedings now closed, both S&P and Moody’s have lifted their ratings, the former to CCC+ with stable outlook (B for the new debt), the latter to Caa2 (Caa1 for new debt), which should help improve commercial terms of trade. The rights issue was taken up by 18.1% of equity holders, at €2.98, above the prevailing market price, with previous debt holders swapping their debt for equity. The focus is now firmly on rebuilding profitability by leveraging Technicolor’s leading market positions across its three operations.
Technicolor |
Financial restructuring completed |
Financial restructuring completed |
Media |
30 September 2020 |
Share price performance
Business description
Next events
Analysts
Technicolor is a research client of Edison Investment Research Limited |
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With its complex financial restructuring complete, Technicolor can now move forward secure in the knowledge of a supportive equity- and debt-holder base. With US Chapter 15 proceedings now closed, both S&P and Moody’s have lifted their ratings, the former to CCC+ with stable outlook (B for the new debt), the latter to Caa2 (Caa1 for new debt), which should help improve commercial terms of trade. The rights issue was taken up by 18.1% of equity holders, at €2.98, above the prevailing market price, with previous debt holders swapping their debt for equity. The focus is now firmly on rebuilding profitability by leveraging Technicolor’s leading market positions across its three operations.
Year end |
Revenue (€m) |
EBITA |
PBT* |
EPS* |
DPS |
P/E |
12/18 |
3,988 |
98 |
7 |
(3.07) |
0.0 |
N/A |
12/19 |
3,800 |
42 |
(73) |
(4.92) |
0.0 |
N/A |
12/20e |
3,100 |
(64) |
(144) |
(1.40) |
0.0 |
N/A |
12/21e |
3,460 |
104 |
33 |
0.06 |
0.0 |
20.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Guidance unchanged
The next trading update should be with the Q3 figures in early November (we covered H120 progress in our August update note). The fundamentals remain unaltered, with a demonstrable need for Connected Home’s products as the effects of the pandemic on corporate and domestic life highlight the importance of reliable domestic broadband. Our model is set to match management guidance. We expect adjusted EBITDA of €169m for FY20, with an adjusted EBITA loss of €64m. Guidance for free cash flow is for an outflow of between €115m and €150m in FY20, with our model at the lower end. By FY22, the business plan points to adjusted EBITDA of €425m and adjusted EBITA of €202m. FY22 free cash flow is indicated to improve to €259m.
Reconfigured share register
Post the debt-to-equity swap, the share register is now led by previous debt holders, topped by Credit Suisse AM with 12.7%, Barings with 10.3% and Bain Capital Credit with 8.2%. Previous shareholders have been diluted down to 11.1%. Warrants have now been issued to both new money lenders (17.7m, exercisable at €0.01) and to shareholders registered at 7 August on the basis of one-for-one shares held, with five warrants giving the right to subscribe to four new shares at €3.58, totalling 12.3m new shares.
Valuation: Digestion underway
The share price is primarily reflecting the issue of the additional shares and warrants diluting previous shareholders, having come back from €2.81 on 15 September, prior to the announcement of the rights’ take up. With the financial restructuring now resolved, the valuation should start to be more representative of the trading prospects but may need positive newsflow on Q3 progress to act as a catalyst to a rerating.
|
Exhibit 1: Financial summary |
€'m |
|
2018 |
2019 |
2020e |
2021e |
Y/E December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
3,988 |
3,800 |
3,100 |
3,460 |
Cost of Sales |
(3,521) |
(3,375) |
(2,841) |
(3,042) |
||
Gross Profit |
467 |
425 |
259 |
418 |
||
EBITDA |
|
|
266 |
325 |
169 |
338 |
EBITA |
|
|
98 |
42 |
(64) |
104 |
Amortisation of acquired intangibles |
(81) |
(54) |
(59) |
(59) |
||
Exceptionals |
(127) |
(79) |
(145) |
(20) |
||
Reported operating profit |
(119) |
(121) |
(268) |
25 |
||
Net Interest |
(51) |
(84) |
(80) |
(71) |
||
Joint ventures & associates (post tax) |
0 |
(1) |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
7 |
(73) |
(144) |
33 |
Profit Before Tax (reported) |
|
|
(170) |
(206) |
(348) |
(46) |
Reported tax |
(54) |
(3) |
(20) |
(20) |
||
Profit After Tax (norm) |
(47) |
(75) |
(164) |
13 |
||
Profit After Tax (reported) |
(224) |
(208) |
(368) |
(66) |
||
Minority interests |
(1) |
0 |
0 |
0 |
||
Discontinued operations |
157 |
(22) |
0 |
0 |
||
Net income (normalised) |
(48) |
(75) |
(164) |
13 |
||
Net income (reported) |
(68) |
(230) |
(368) |
(66) |
||
Average Number of Shares Outstanding (m) |
15 |
15 |
117 |
218 |
||
EPS - normalised (c) |
|
|
(306.94) |
(492.18) |
(140.14) |
5.96 |
EPS - normalised fully diluted (c) |
|
|
(306.94) |
(492.18) |
(121.70) |
5.52 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
(6) |
(5) |
(18) |
12 |
||
Gross Margin (%) |
11.7 |
11.2 |
8.4 |
12.1 |
||
EBITDA Margin (%) |
6.7 |
8.6 |
5.4 |
9.8 |
||
EBITA Margin (%) |
2.5 |
1.1 |
(2.1) |
3.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
2,101 |
2,082 |
1,825 |
1,689 |
Intangible Assets |
1,591 |
1,483 |
1,274 |
1,140 |
||
Tangible Assets |
233 |
476 |
428 |
426 |
||
Investments & other |
26 |
40 |
40 |
40 |
||
Deferred tax and other |
251 |
84 |
84 |
84 |
||
Current Assets |
|
|
1,659 |
1,126 |
1,185 |
1,310 |
Stocks |
268 |
243 |
198 |
221 |
||
Debtors |
677 |
507 |
447 |
523 |
||
Cash & cash equivalents |
291 |
64 |
228 |
254 |
||
Other |
423 |
312 |
312 |
312 |
||
Current Liabilities |
|
|
(1,909) |
(1,542) |
(1,232) |
(1,287) |
Creditors |
(1,135) |
(825) |
(610) |
(665) |
||
Tax and social security |
(34) |
(41) |
(41) |
(41) |
||
Short term borrowings |
(20) |
(95) |
0 |
0 |
||
Other |
(720) |
(581) |
(581) |
(581) |
||
Long Term Liabilities |
|
|
(1,385) |
(1,604) |
(1,424) |
(1,424) |
Long term borrowings |
(1,004) |
(1,203) |
(1,023) |
(1,023) |
||
Deferred tax |
(193) |
(27) |
(27) |
(27) |
||
Other long term liabilities |
(381) |
(401) |
(401) |
(401) |
||
Net Assets |
|
|
466 |
62 |
354 |
288 |
Minority interests |
1 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
467 |
62 |
354 |
288 |
CASH FLOW |
||||||
Net profit |
(224) |
(208) |
(368) |
(66) |
||
Depreciation and amortisation |
234 |
322 |
292 |
281 |
||
Working capital |
2 |
(69) |
(110) |
(45) |
||
Tax and interest |
(53) |
(76) |
(90) |
(81) |
||
Exceptional & other |
159 |
101 |
165 |
81 |
||
Net operating cash flow |
|
|
118 |
70 |
(110) |
170 |
Capex |
(113) |
(169) |
(110) |
(145) |
||
Acquisitions/disposals |
1 |
(2) |
0 |
0 |
||
Equity financing |
0 |
1 |
60 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
28 |
3 |
0 |
0 |
||
Net Cash Flow |
34 |
(97) |
(161) |
25 |
||
Opening net debt/(cash) |
|
|
778 |
733 |
1,234 |
794 |
FX |
1 |
0 |
0 |
|||
Discontinued |
105 |
0 |
0 |
0 |
||
Other non-cash movements |
(95) |
(404) |
600 |
0 |
||
Closing net debt/(cash), excluding IFRS16 leases |
|
733 |
1,234 |
794 |
769 |
|
Source: Company accounts, Edison Investment Research
|
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Research: TMT
Amid an unprecedented economic downturn, 1Spatial performed resiliently during H1. Sales rose y-o-y, EBITDA grew and the company generated FCF. At company level, rising recurring revenue and a growing order book of contracted sales is improving visibility. However, the broader economic backdrop remains uncertain and could affect deal closure. Reflecting this wider uncertainty, we reinstate forecasts at a conservative level.