Operating performance across all Entertainment One (eOne) divisions is in line with management’s full year expectations, with the H1/H2 weighting expected to be broadly in line with last year. As the group’s business grows, so does its library valuation, which has increased by 13% y-o-y to $1.7bn, underpinning c 80% of the current EV.
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Entertainment One |
Library value up 13% and H118 trading on track |
Trading update |
Media |
27 September 2017 |
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Entertainment One is a research client of Edison Investment Research Limited |
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Operating performance across all Entertainment One (eOne) divisions is in line with management’s full year expectations, with the H1/H2 weighting expected to be broadly in line with last year. As the group’s business grows, so does its library valuation, which has increased by 13% y-o-y to $1.7bn, underpinning c 80% of the current EV.
Year end |
Revenue |
EBITDA |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
802.7 |
129.1 |
104.1 |
19.4 |
1.2 |
13.3 |
0.5 |
03/17 |
1,082.7 |
160.2 |
129.9 |
20.0 |
1.3 |
12.9 |
0.5 |
03/18e |
1,180.2 |
175.0 |
146.0 |
22.0 |
1.4 |
11.7 |
0.5 |
03/19e |
1,280.1 |
199.9 |
167.4 |
24.7 |
1.5 |
10.4 |
0.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Full year outlook reiterated
Operating performance is on track to meet full year expectations with the H1/H2 weighting of performance similar to last year. Management has also reiterated its expectation of a net debt to EBITDA ratio of c 1.2x at the end of the year.
All divisions on track
In Family, Peppa Pig is seeing growing momentum in newer territories. Initial retail revenues in China are ahead of expectations and more mature markets have benefited from the release of Peppa’s first cinematic film last year. The roll-out of PJ Masks, which started in the US last year, has progressed well in Europe and Australia where retail revenues are also tracking strongly and Asia will be added in H218 with China to follow. In eOne Television, management now expects c 900 half-hours to be delivered across the year versus guidance of 1,000, with the mix moving more towards scripted content. MGC is performing well. Four of the five heritage shows have been renewed, as well as Designated Survivor under the new production/distribution arrangement with eOne. In H218 MGC is also expected to release its first film productions including Molly’s Game, which is also being distributed by eOne outside the US. In Film, the H1 slate was smaller and lower profile than last year’s which included the The BFG; however, the H2 slate looks solid, including Spielberg’s The Post, Paddington 2 and Molly’s Game.
Library valuation increases to $1.7bn (£1.3bn)
eOne has also reported a 13% increase in the value of its library, attributed to the success of PJ Masks and Designated Survivor. With c 80% of the market valuation underpinned by the library, this leaves little in the rating for the value of eOne’s extensive production and sales network. Compared to peers, the shares also offer value; on a 2018e EV/EBITDA of 7.9x, it trades at a substantial discount to peers Lionsgate (14.9x) and DHX (10.8x). Approximately 70% of EBITDA is now from the higher-growth and higher-margin divisions; we believe that eOne’s strategy, which leans more towards produced rather than acquired content, is playing out and expect this discount to close.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018e |
2019e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
785.8 |
802.7 |
1,082.7 |
1,180.2 |
1,280.1 |
||
Cost of Sales |
(578.0) |
(610.1) |
(822.9) |
(896.9) |
(972.9) |
||
Gross Profit |
207.8 |
192.6 |
259.8 |
283.2 |
307.2 |
||
EBITDA |
107.3 |
129.1 |
160.2 |
175.0 |
199.9 |
||
Operating Profit |
103.6 |
124.7 |
155.3 |
169.5 |
193.4 |
||
Amortisation of intangibles |
(22.2) |
(27.4) |
(41.9) |
(40.0) |
(40.0) |
||
Exceptional items |
(17.9) |
(16.6) |
(47.1) |
0.0 |
0.0 |
||
Share based payment charge |
(3.4) |
(5.7) |
(5.0) |
(5.0) |
(5.0) |
||
JV tax, finance costs, dep'n |
0.1 |
(1.6) |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
60.2 |
73.4 |
61.3 |
124.5 |
148.4 |
||
Net Interest |
(14.8) |
(20.6) |
(25.4) |
(23.5) |
(26.0) |
||
Exceptional finance items |
(1.4) |
(6.5) |
1.3 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
88.8 |
104.1 |
129.9 |
146.0 |
167.4 |
||
Profit Before Tax (FRS 3) |
44.0 |
47.9 |
37.2 |
101.0 |
122.4 |
||
Tax (reported) |
(2.7) |
(7.7) |
(12.3) |
(22.2) |
(28.2) |
||
Tax (adjustment for normalised earnings) |
|
(16.8) |
(16.8) |
(16.1) |
(9.9) |
(10.4) |
|
Profit After Tax (before non-controlling interests) (norm) |
69.3 |
79.6 |
101.5 |
113.8 |
128.9 |
||
Profit After Tax (before non-controlling interests) (FRS3) |
41.2 |
40.2 |
24.9 |
78.7 |
94.3 |
||
Non-controlling interests |
0.0 |
(3.7) |
(11.9) |
(17.5) |
(19.9) |
||
Average Number of Shares, Diluted (m) |
332.9 |
379.8 |
433.4 |
437.5 |
442.0 |
||
EPS - normalised (p) |
20.8 |
19.4 |
20.0 |
22.0 |
24.7 |
||
EPS - FRS 3 (p) |
12.7 |
9.8 |
3.0 |
14.4 |
17.4 |
||
Dividend per share (p) |
1.1 |
1.2 |
1.3 |
1.4 |
1.5 |
||
Gross Margin (%) |
26.4 |
24.0 |
24.0 |
24.0 |
24.0 |
||
EBITDA Margin (%) |
13.7 |
16.1 |
14.8 |
14.8 |
15.6 |
||
Operating Margin (before GW and except) (%) |
13.2 |
15.5 |
14.3 |
14.4 |
15.1 |
||
BALANCE SHEET |
10% |
12% |
|||||
Non-current Assets |
538.4 |
890.7 |
972.7 |
956.9 |
927.8 |
||
Intangible Assets (incl Investment in programmes) |
473.9 |
808.2 |
870.6 |
857.3 |
834.7 |
||
Tangible Assets |
6.1 |
60.1 |
72.8 |
78.3 |
81.8 |
||
Deferred tax/Investments |
58.4 |
22.4 |
29.3 |
21.3 |
11.3 |
||
Current Assets |
634.3 |
752.0 |
928.3 |
942.8 |
1,015.6 |
||
Stocks |
52.0 |
51.1 |
48.6 |
48.6 |
48.6 |
||
Investment in content rights |
221.1 |
241.3 |
269.8 |
287.8 |
291.0 |
||
Debtors |
289.9 |
351.3 |
476.5 |
531.4 |
600.9 |
||
Cash |
71.3 |
108.3 |
133.4 |
75.0 |
75.0 |
||
Current Liabilities |
(488.3) |
(568.7) |
(679.4) |
(673.9) |
(682.1) |
||
Creditors |
(398.7) |
(470.7) |
(574.6) |
(569.1) |
(577.3) |
||
Short term borrowings |
(89.6) |
(98.0) |
(104.8) |
(104.8) |
(104.8) |
||
Long Term Liabilities |
(319.6) |
(413.6) |
(464.6) |
(456.4) |
(437.1) |
||
Long term borrowings |
(295.9) |
(309.1) |
(368.3) |
(360.1) |
(340.8) |
||
Other long term liabilities |
(23.7) |
(104.5) |
(96.3) |
(96.3) |
(96.3) |
||
Net Assets |
364.8 |
660.4 |
757.0 |
769.3 |
824.2 |
||
CASH FLOW |
|||||||
Operating Cash Flow |
271.9 |
320.1 |
438.4 |
534.0 |
660.1 |
||
Net Interest |
(13.4) |
(31.0) |
(25.0) |
(23.5) |
(26.0) |
||
Tax |
(10.8) |
(17.7) |
(18.4) |
(26.7) |
(33.8) |
||
Capex |
(4.8) |
(8.6) |
(3.8) |
(11.0) |
(10.0) |
||
Acquisitions/disposals |
(104.3) |
(226.0) |
(7.5) |
(10.0) |
(10.0) |
||
Investment in content rights and TV programmes |
(280.8) |
(218.5) |
(408.1) |
(503.0) |
(550.0) |
||
Proceeds on issue of shares |
0.0 |
194.6 |
0.0 |
0.0 |
0.0 |
||
Dividends |
(2.9) |
(4.0) |
(8.3) |
(10.0) |
(11.0) |
||
Net Cash Flow |
(145.1) |
8.9 |
(32.7) |
(50.1) |
19.4 |
||
Opening net debt/(cash) |
165.1 |
314.2 |
299.0 |
339.7 |
390.0 |
||
Movements in exchangeable notes |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other including forex |
(4.0) |
6.3 |
(8.0) |
(0.1) |
(0.0) |
||
Closing IFRS debt/(cash) |
314.2 |
299.0 |
339.7 |
390.0 |
370.6 |
||
Analysis Of Net Debt |
|||||||
Production finance |
89.3 |
118.0 |
152.3 |
185.6 |
210.0 |
||
Net debt |
224.9 |
181.0 |
187.4 |
204.4 |
160.6 |
||
Gearing |
2.1 |
1.4 |
1.2 |
1.2 |
0.8 |
||
Source: Entertainment One (historics), Edison Investment Research (forecasts)
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