Future |
Imagining the Future |
Year-end trading update |
Media |
12 October 2016 |
Share price performance
Business description
Next events
Analysts
Future is a research client of Edison Investment Research Limited |
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Future’s year-end trading update outlines the good progress made in driving the new revenue streams, leveraging the strong portfolio of global brands. FY16 results are in line with management expectations, with cash flow better than anticipated, resulting in a small net cash position at the year end. Future has now been informed that the CMA has no objection to it completing the acquisition of Imagine Publishing, subject to the ring-fencing of one title out of the 22 in the portfolio. Our FY17 pro forma estimates now assume the acquisition is included as of 1 November 2016. The shares remain at a substantial discount, which should close as the benefits of the deal come through.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/14 |
66.0 |
(11.1) |
(3.2) |
0.0 |
N/A |
N/A |
09/15 |
59.8 |
0.2 |
0.2 |
0.0 |
43.8 |
N/A |
09/16e |
57.6 |
0.8 |
0.3 |
0.0 |
29.2 |
N/A |
09/17e** |
68.2 |
4.6 |
0.7 |
0.0 |
12.5 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **FY17 pro forma assumes deal completes 1 November 2016.
Progress on margin and revenue diversification
The changes implemented by management over the last couple of years are now starting to be reflected in the numbers coming through, with margins scaling up and a more robust business model. New income streams, such as those generated from e-commerce and events will allow the group to drive returns on the investment from the brand portfolio. The reorganisation of the magazine division is facilitating more efficient operation, which will be leveraged further with the additional titles from the Imagine portfolio. More detail will be given with the full year results towards the end of November. Cash flow in H216 has evidently been better than we had modelled. Our forecast was for a year-end net debt position of £2.7m, whereas the company’s update refers to a small net cash balance. Our model will be fully updated on the full year results.
More to come from Imagine
When we initiated coverage in August (see note), we included the Imagine acquisition pro forma for the whole of FY17, to demonstrate the scale of the transformation and particularly the uplift in earnings per share. However, we did not then include, and have not now, any of the benefits of scale that should come from centralisation of overhead, leaner management or buying synergies.
Valuation: Remains on discount
Future’s market valuation (pro forma) is at a discount against a broad set of peers of around 20% on EV/sales. On EV/EBITDA, the shares are rated around par with the more print-oriented stocks in the sector, but on a discount to those with larger digital assets. Our DCF analysis indicates a price around 13p on 10% WACC and 2% terminal growth rate assumptions, based on conservative pro forma estimates. As the full benefits of the acquisition come through, this valuation gap should close.
Financial summary
Exhibit 1: Financial summary
£'m |
2013 |
2014 |
2015 |
2016e |
2017pf |
||
30 September |
IFRS |
IFRS |
IFRS |
IFRS |
IRFS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
82.6 |
66.0 |
59.8 |
57.6 |
68.2 |
Cost of Sales |
(58.5) |
(50.6) |
(40.6) |
(36.7) |
(44.4) |
||
Gross Profit |
24.1 |
15.4 |
19.2 |
21.0 |
23.8 |
||
EBITDA |
|
|
(0.6) |
(7.0) |
3.6 |
4.6 |
9.0 |
Normalised operating profit |
|
|
(3.4) |
(10.3) |
0.8 |
1.7 |
6.1 |
Amortisation of acquired intangibles |
(2.0) |
(2.3) |
(2.3) |
(2.3) |
(3.7) |
||
Exceptionals |
2.6 |
(24.3) |
(2.5) |
(3.0) |
(2.0) |
||
Share-based payments |
(0.3) |
(0.1) |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
(3.1) |
(37.0) |
(4.0) |
(3.6) |
0.4 |
||
Net Interest |
(1.4) |
(0.8) |
(0.6) |
(0.9) |
(1.5) |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit before tax (norm) |
|
|
(4.8) |
(11.1) |
0.2 |
0.8 |
4.6 |
Profit before tax (reported) |
|
|
(4.2) |
(35.4) |
(2.3) |
(2.2) |
(1.1) |
Reported tax |
(0.1) |
0.5 |
0.3 |
0.4 |
0.2 |
||
Profit after tax (norm) |
(4.9) |
(10.6) |
0.5 |
1.2 |
3.6 |
||
Profit after tax (reported) |
(4.3) |
(34.9) |
(2.0) |
(1.8) |
(0.9) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(4.9) |
(10.6) |
0.6 |
1.2 |
3.6 |
||
Net income (reported) |
(4.3) |
(34.9) |
(2.0) |
(1.8) |
(0.9) |
||
|
|||||||
Basic average number of shares outstanding (m) |
332 |
332 |
333 |
362 |
536 |
||
EPS – basic normalised (p) |
|
|
(1.5) |
(3.2) |
0.2 |
0.3 |
0.7 |
EPS – diluted normalised (p) |
|
|
(1.4) |
(3.2) |
0.2 |
0.3 |
0.7 |
EPS – basic reported (p) |
|
|
(1.3) |
(10.5) |
(0.6) |
(0.5) |
(0.2) |
Dividend (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
|
|||||||
Revenue growth (%) |
N/A |
(20.1) |
(9.4) |
(3.6) |
0.2 |
||
Gross margin (%) |
29.2 |
23.3 |
32.1 |
36.4 |
34.9 |
||
EBITDA margin (%) |
(0.7) |
(10.6) |
6.0 |
8.0 |
13.1 |
||
Normalised operating margin (%) |
(4.1) |
(15.6) |
1.3 |
2.9 |
8.9 |
||
|
|||||||
BALANCE SHEET |
|
||||||
Fixed assets |
|
|
92.7 |
45.9 |
44.9 |
46.1 |
59.4 |
Intangible assets |
89.8 |
44.4 |
43.8 |
45.0 |
57.9 |
||
Tangible assets |
2.5 |
1.0 |
0.6 |
0.6 |
1.0 |
||
Investments & other |
0.4 |
0.5 |
0.5 |
0.5 |
0.5 |
||
Current assets |
|
|
28.3 |
22.9 |
19.5 |
18.5 |
21.3 |
Stocks |
1.9 |
0.6 |
0.5 |
0.3 |
0.4 |
||
Debtors |
21.4 |
12.8 |
15.3 |
13.8 |
17.4 |
||
Cash & cash equivalents |
4.6 |
7.5 |
2.5 |
3.2 |
2.3 |
||
Other |
0.4 |
2.0 |
1.2 |
1.2 |
1.2 |
||
Current liabilities |
|
|
(44.2) |
(27.1) |
(25.9) |
(26.6) |
(32.3) |
Creditors |
(31.6) |
(25.9) |
(20.7) |
(19.9) |
(23.6) |
||
Tax and social security |
(0.9) |
(1.2) |
(0.9) |
(0.9) |
(0.9) |
||
Short-term borrowings |
(11.5) |
0.0 |
(4.3) |
(5.8) |
(7.8) |
||
Other |
(0.2) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long-term liabilities |
|
|
(9.4) |
(9.1) |
(7.1) |
(7.2) |
(10.6) |
Long-term borrowings |
0.0 |
0.0 |
0.0 |
(0.1) |
(3.5) |
||
Other long-term liabilities |
(9.4) |
(9.1) |
(7.1) |
(7.1) |
(7.1) |
||
Net assets |
|
|
67.4 |
32.6 |
31.4 |
30.7 |
37.8 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
67.4 |
32.6 |
31.4 |
30.7 |
37.8 |
|
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CASH FLOW |
|
||||||
Operating cash flow before WC and tax |
0.6 |
(31.6) |
0.8 |
4.6 |
7.0 |
||
Working capital |
(0.7) |
7.7 |
(8.0) |
(1.0) |
(1.3) |
||
Exceptional & other |
(2.4) |
22.4 |
(0.4) |
(4.1) |
(2.5) |
||
Tax |
1.5 |
(1.5) |
(0.5) |
(0.6) |
(1.2) |
||
Net operating cash flow |
|
|
(1.0) |
(3.0) |
(8.1) |
(1.0) |
3.1 |
Capex |
(2.9) |
(2.6) |
(2.0) |
(2.0) |
(2.0) |
||
Acquisitions/disposals |
9.2 |
21.3 |
1.3 |
0.0 |
(20.0) |
||
Net interest |
(1.4) |
(0.8) |
(0.6) |
(0.9) |
(1.5) |
||
Equity financing |
0.0 |
0.0 |
0.0 |
3.1 |
14.2 |
||
Dividends |
0.0 |
(0.7) |
0.0 |
0.0 |
0.0 |
||
Other |
(0.1) |
0.0 |
0.0 |
0.0 |
1.1 |
||
Net cash flow |
3.8 |
14.2 |
(9.4) |
(0.8) |
(5.1) |
||
Opening net debt/(cash) |
|
|
10.6 |
6.9 |
(7.5) |
1.8 |
2.7 |
FX |
(0.1) |
0.2 |
0.1 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
(0.1) |
0.0 |
||
Closing net debt/(cash) |
|
|
6.9 |
(7.5) |
1.8 |
2.7 |
7.8 |
Source: Company accounts, Edison Investment Research. Note: FY17e figures assume deal completes as of 1 November 2016.
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