eOne’s bolt on acquisition of Whizz Kid in the UK further builds on its expanding capabilities in the non-scripted television production segment. The £6.9m consideration paid for a 70% interest will be part funded utilising some of the excess proceeds of the recent placing and shares.
Written by
Entertainment One |
Nothing unscripted about Whizz Kid acquisition |
Acquisition |
Media |
9 April 2018 |
Share price performance
Business description
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Analysts
Entertainment One is a research client of Edison Investment Research Limited |
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eOne’s bolt on acquisition of Whizz Kid in the UK further builds on its expanding capabilities in the non-scripted television production segment. The £6.9m consideration paid for a 70% interest will be part funded utilising some of the excess proceeds of the recent placing and shares.
Year end |
Revenue (£m) |
EBITDA |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
802.7 |
129.1 |
104.1 |
19.4 |
1.2 |
14.3 |
0.4 |
03/17 |
1082.7 |
160.2 |
129.9 |
20.0 |
1.3 |
13.9 |
0.5 |
03/18e |
1076.1 |
175.1 |
145.7 |
22.1 |
1.4 |
12.5 |
0.5 |
03/19e |
1172.1 |
196.6 |
160.6 |
24.5 |
1.5 |
11.3 |
0.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Whizz kid: Non-scripted television production
eOne has acquired a 70% stake in Whizz Kid Entertainment, a UK-based production company specialising in non-scripted television formats such as Ex on the Beach (9 series - MTV US) and Lip Sync Battle UK (Channel 5). Founded in 2006, Whizz Kid reported revenues of £14.2m for the year to March 2017 and EBITDA of £1.6m. Of the £6.9m acquisition price, eOne will pay £5m in cash, drawing on the recent fund raising, and the balance via the issuance of c 638k eOne shares. The deal is expected to complete by 12 April. A put and call arrangement has been put in place for the company to acquire the remaining 30% after a five-year period. The founding partners of Whizz Kid will continue to lead the division.
On strategy: Expands UK capabilities
eOne has been expanding its capabilities in non-scripted programming over the last few years with the acquisitions of Paperny Entertainment Group and Force Four in 2014 followed by Renegade 83 in 2016. The acquisition of Whizz Kid provides eOne with a stronger footing in the UK, an important creative hub for non-scripted entertainment. Along with the production capabilities acquired, eOne has also entered into a distribution agreement with Whizz Kid. In our view, the 6.2x FY17 EBITDA multiple looks reasonable and the deal is in line with eOne’s strategy to build its production and distribution capabilities across a range of content genres.
Valuation: Sticking to script
At the earnings level, we do not expect a material change to forecasts which we will update at the time of the FY18 results in May. While the acquisition is relatively small in the wider context of the group, eOne continues to diligently execute its buy-and-build strategy to create a leading diversified content business. The recent trading update provides comfort regarding FY18 results and the pipeline for the year ahead. On 8.4x FY19e (to March) EV/EBITDA, we believe the shares offer good value compared to peers which trade at a c 25% premium.
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 |
1,076.1 |
1,172.1 |
||
Cost of Sales |
(578.0) |
(610.1) |
(822.9) |
(817.9) |
(890.8) |
||
Gross Profit |
207.8 |
192.6 |
259.8 |
258.3 |
281.3 |
||
EBITDA |
107.3 |
129.1 |
160.2 |
175.1 |
196.6 |
||
Operating Profit |
103.6 |
124.7 |
155.3 |
169.6 |
190.1 |
||
Amortisation of intangibles |
(22.2) |
(27.4) |
(41.9) |
(40.0) |
(40.0) |
||
Exceptional items |
(17.9) |
(16.6) |
(47.1) |
(3.3) |
(2.5) |
||
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 |
121.3 |
142.6 |
||
Net Interest |
(14.8) |
(20.6) |
(25.4) |
(23.9) |
(29.5) |
||
Exceptional finance items |
(1.4) |
(6.5) |
1.3 |
(11.8) |
0.0 |
||
Profit Before Tax (norm) |
88.8 |
104.1 |
129.9 |
145.7 |
160.6 |
||
Profit Before Tax (FRS 3) |
44.0 |
47.9 |
37.2 |
85.6 |
113.1 |
||
Tax (reported) |
(2.7) |
(7.7) |
(12.3) |
(18.8) |
(26.0) |
||
Tax (adjustment for normalised earnings) |
|
(16.8) |
(16.8) |
(16.1) |
(13.2) |
(10.9) |
|
Profit After Tax (before non-controlling interests) (norm) |
69.3 |
79.6 |
101.5 |
113.7 |
123.7 |
||
Profit After Tax (before non-controlling interests) (FRS3) |
41.2 |
40.2 |
24.9 |
66.8 |
87.1 |
||
Non-controlling interests |
0.0 |
(3.7) |
(11.9) |
(16.5) |
(9.4) |
||
Average Number of Shares, Diluted (m) |
332.9 |
379.8 |
433.4 |
440.0 |
466.4 |
||
EPS - normalised (p) |
20.8 |
19.4 |
20.0 |
22.1 |
24.5 |
||
EPS - FRS 3 (p) |
12.7 |
9.8 |
3.0 |
11.6 |
16.8 |
||
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 |
16.3 |
16.8 |
||
Operating Margin (before GW and except) (%) |
13.2 |
15.5 |
14.3 |
15.8 |
16.2 |
||
BALANCE SHEET |
10% |
11% |
|||||
Non-current Assets |
538.4 |
890.7 |
972.7 |
1,094.3 |
1,082.5 |
||
Intangible Assets (incl Investment in programmes) |
473.9 |
808.2 |
870.6 |
993.7 |
978.4 |
||
Tangible Assets |
6.1 |
60.1 |
72.8 |
78.3 |
81.8 |
||
Deferred tax/Investments |
58.4 |
22.4 |
29.3 |
22.3 |
22.3 |
||
Current Assets |
634.3 |
752.0 |
928.3 |
917.8 |
989.0 |
||
Stocks |
52.0 |
51.1 |
48.6 |
48.6 |
48.6 |
||
Investment in content rights |
221.1 |
241.3 |
269.8 |
297.8 |
302.4 |
||
Debtors |
289.9 |
351.3 |
476.5 |
496.4 |
563.0 |
||
Cash |
71.3 |
108.3 |
133.4 |
75.0 |
75.0 |
||
Current Liabilities |
(488.3) |
(568.7) |
(679.4) |
(637.8) |
(636.2) |
||
Creditors |
(398.7) |
(470.7) |
(574.6) |
(533.0) |
(531.4) |
||
Short term borrowings |
(89.6) |
(98.0) |
(104.8) |
(104.8) |
(104.8) |
||
Long Term Liabilities |
(319.6) |
(413.6) |
(464.6) |
(550.4) |
(540.4) |
||
Long term borrowings |
(295.9) |
(309.1) |
(368.3) |
(454.1) |
(444.1) |
||
Other long term liabilities |
(23.7) |
(104.5) |
(96.3) |
(96.3) |
(96.3) |
||
Net Assets |
364.8 |
660.4 |
757.0 |
823.8 |
894.9 |
||
CASH FLOW |
|||||||
Operating Cash Flow |
271.9 |
320.1 |
438.4 |
477.2 |
621.8 |
||
Net Interest |
(13.4) |
(31.0) |
(25.0) |
(23.9) |
(29.5) |
||
Tax |
(10.8) |
(17.7) |
(18.4) |
(22.6) |
(31.2) |
||
Capex |
(4.8) |
(8.6) |
(3.8) |
(11.0) |
(10.0) |
||
Acquisitions/disposals |
(104.3) |
(226.0) |
(7.5) |
(134.0) |
0.0 |
||
Investment in content rights and TV programmes |
(280.8) |
(218.5) |
(408.1) |
(473.0) |
(530.0) |
||
Proceeds on issue of shares |
0.0 |
194.6 |
0.0 |
53.2 |
0.0 |
||
Dividends |
(2.9) |
(4.0) |
(8.3) |
(10.0) |
(11.0) |
||
Net Cash Flow |
(145.1) |
8.9 |
(32.7) |
(144.1) |
10.0 |
||
Opening net debt/(cash) |
165.1 |
314.2 |
299.0 |
339.7 |
484.0 |
||
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 |
484.0 |
473.9 |
||
ANALYSIS OF NET DEBT |
|||||||
Production finance |
89.3 |
118.0 |
152.3 |
183.8 |
204.3 |
||
Net debt |
224.9 |
181.0 |
187.4 |
300.2 |
269.7 |
||
Source: Historics – eOne, Forecasts - Edison
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