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Research: TMT
Mondo TV has returned to profit in the first half of FY19, on its rebased business model with a more concentrated portfolio. Financial performance is tracking to management’s plan and our only forecast changes reflect IFRS 16 adoption. Visibility through H219 and into FY20 on the production pipeline is improving. The streaming of YooHoo & Friends on Netflix raises the group’s profile and the Toon2Tango partnership opens more European opportunities. The shares are valued well below global content peers.
Mondo TV |
Setting the scene for profit recovery |
Half-year results |
Media |
25 September 2019 |
Share price performance
Business description
Next events
Analysts
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Mondo TV has returned to profit in the first half of FY19, on its rebased business model with a more concentrated portfolio. Financial performance is tracking to management’s plan and our only forecast changes reflect IFRS 16 adoption. Visibility through H219 and into FY20 on the production pipeline is improving. The streaming of YooHoo & Friends on Netflix raises the group’s profile and the Toon2Tango partnership opens more European opportunities. The shares are valued well below global content peers.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
EV/EBIT |
P/E |
12/17 |
32.0 |
15.4 |
43.0 |
0.0 |
1.5 |
2.7 |
12/18 |
18.9 |
(30.1) |
(56.3) |
0.0 |
N/A |
N/A |
12/19e |
20.8 |
6.0 |
10.3 |
0.0 |
4.2 |
11.3 |
12/20e |
27.8 |
7.8 |
12.8 |
0.0 |
3.3 |
9.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
On business plan target trajectory
Group H119 production value of €12.8m was 26% down on H118 but well ahead of the €4.9m achieved in H218. These figures put Mondo TV well on track to meet management’s published business plan target of €24.5m for FY19. H119 EBITDA of €7.8m compares with the FY19 target of €14.3m, although this latter figure does not include the uplift from the adoption of IFRS 16 (€0.3m of amortisation of usage rights is identified for the half-year). The accounting change also reduces the reported net cash position by €1.8m to €1.7m at the period end, on gross cash resource of €10.5m. There is no new news on the outstanding disputes with Asian ex-customer New Information Tech and the Italian tax authorities (see May update).
Streamers content appetite unabated for now
The upcoming Mipcom at Cannes (12–17 October) will set the mood for the global content market. The disruption from new streaming platforms (Disney+, Apple TV+, WarnerMedia, NBCUniversal etc.) drives competition for quality content, but much of the additional spend is focused on ‘tent pole’ properties. Children’s content is valued to attract household subscriptions and traditional broadcasters have been less open to commission new series for some time. Licensing and merchandising markets have been lacklustre in recent months, on poorer economic conditions and the impact of (and threat of further) US Chinese trade sanctions also weighing on advertising revenues.
Valuation: Deep discount persists
Since the start of 2019, Mondo TV’s shares have traded in a €0.93–1.64 range. This represents a substantial discount to global peers (parity on EV/EBIT would indicate a share price of €2.82; on a P/E basis €1.75). This is slightly below levels in May as sector earnings expectations have moderated, despite the uplift in the EntertainmentOne valuation post Hasbro’s bid. A DCF at a WACC of 11.5% and terminal growth of 2% suggests a price of €2.09. The average of these three values is €2.22 (€2.32 in May), nearly double the current market price.
Half-year results
Exhibit 1: H119 Mondo TV Group results summary
€m |
H119 (IFRS 16) |
H118 (non IFRS 16) |
% change |
FY18 (non IFRS 16) |
Revenue |
11.0 |
16.1 |
-32 |
18.9 |
Capitalised content development |
1.8 |
1.1 |
+58 |
2.7 |
Production value |
12.8 |
17.3 |
-26 |
22.2 |
Operating costs |
(5.0) |
(4.3) |
+16 |
(11.0) |
EBITDA |
7.8 |
12.9 |
-40 |
11.2 |
D&A (including exceptionals) |
(4.5) |
(4.0) |
+13 |
(65.7) |
EBIT |
3.3 |
9.0 |
-64 |
(54.5) |
Net financial costs |
(0.1) |
0.5 |
N/A |
0.5 |
PBT |
3.2 |
9.5 |
-66 |
(54.0) |
Tax |
(1.2) |
(2.8) |
-59 |
11.5 |
Minorities |
0.0 |
0.2 |
3.0 |
|
Net profit |
2.0 |
6.8 |
-70 |
(39.5) |
Source: Company accounts
A straight comparison against the first half of the prior year looks unfavourable, but should be seen in the context of the change of management strategy as outlined in our Outlook note in May. H218 delivered EBITDA of just €1.7m and a substantial library write-down. Compared to this previous reporting period, the group is now delivering substantial growth and looks set to deliver full-year results in line with management’s published goals.
Operating cash flow in the reporting period was €5.2m, marginally ahead of H118 at €5.1m. €10.5m was invested, leaving net cash on a pre-IFRS 16 basis of €3.5m. The new accounting treatment adds a further €1.8m in leasing debt, reducing the published net cash to €1.7m. We expect the cash flow to improve in the second half. Traditionally, broadcasters pay for content on delivery. Netflix, however, extracts extended payment terms from its suppliers, so should be paying further instalments for YooHoo & Friends in H219.
Busy in all territories
As outlined in our Outlook report in May, Mondo TV group is based and quoted in Italy. This is the main operation, but it has operating subsidiaries in Iberia, France and Switzerland, with local stock market quotes.
Mondo TV France in the driving seat
The increase in capitalised costs relates primarily to Mondo TV France (19% owned by Mondo TV), where they increased from €0.6m in H118 to €1.14m in H119, alongside an increase in revenues from €0.1m to €0.8m, giving a production value of €2.0m from €0.8m. The business plan indicates a FY19 production value of €4.7m, driven by Rocky Kwaternaire and Disco Dragoon. For the second series of Rocky, 13 further episodes were delivered, making 26 out of the total 52, with production of the balance expected to complete in 2019. Development continues for Disco Dragoon, with production scheduled for Q419, airing in Q120.
Other operating costs rose €0.4m but personnel costs were relatively stable, leading to EBITDA of €0.5m from a loss of €0.2m in the comparative period. Heavier amortisation and write-downs pushed the company into a loss at the EBIT level, but less than that of the prior period.
Mondo TV France ended the half year with net debt of €0.3m, having received €1.0m funding from the conversion of Atlas bonds in the period. A further €0.3m has been raised from this source since the period end, giving Atlas a 12% shareholding. There remain 15 bonds (at €10k) left to convert.
Mondo TV Iberoamerica fundraising
The Spanish company of the Mondo TV group is conducting a capital raise targeting new funding of €3.5m. This would allow it to pursue various series’ projects and capitalise on its strong relationship with the broadcaster, RAI. It would also accelerate its diversification from its historic emphasis of distribution in Spanish- and Portuguese-language territories.
Mondo TV plus Mondo TV Suisse in German JV
As outlined in June, Mondo TV has entered a co-operation agreement with Hans Ulrich Stoef’s (former CEO of m4e and Studio 100 Media) new venture, Toon2Tango. The new venture is set to develop, co-produce and distribute at least eight new 3D CGI animated series over the next four years. These would be targeted at six- to 11-year-olds initially, then expand to pre-school and into live action, on properties with strong licensing and merchandising potential. The underlying IP will be co-owned between the two partners, sharing all revenues.
Outstanding corporate issues persist
We laid out the history of the disputes with ex-customers in Asian territories in an update note in May and there is no additional update on the last remaining dispute with New Information Tech, which is in the hands of lawyers. Other lawyers for Mondo TV continue to dispute the claim from Italian tax authorities for €1.1m (with potential for further verifications for other years).
Valuation
Exhibit 2: Peer group valuations
Name |
Curr |
Price |
Market cap (m) |
Ytd perf |
P/E |
P/E |
P/E |
EV/ |
EV/ |
EV/ |
EV/ |
EV/ |
EV/ |
EV/ |
Yield 1FY (%) |
eOne |
GBp |
571 |
2,845 |
60.1 |
56.3 |
21.6 |
19.1 |
3.1 |
6.7 |
12.4 |
11.4 |
41.2 |
16.0 |
15.4 |
0.3 |
Xilam Animation |
EUR |
34.4 |
169 |
-8.6 |
26.2 |
21.8 |
15.6 |
5.8 |
6.9 |
5.6 |
4.7 |
18.4 |
15.0 |
10.8 |
0.0 |
Mediawan |
EUR |
10.24 |
326 |
-6.9 |
16.8 |
12.1 |
10.3 |
1.5 |
4.8 |
4.4 |
10.1 |
8.9 |
0.0 |
||
Lions Gate Ent |
USD |
11.30 |
2,366 |
-29.9 |
21.5 |
11.2 |
9.2 |
1.5 |
22.2 |
10.8 |
9.2 |
63.0 |
13.4 |
12.4 |
1.6 |
Toei |
JPY |
4895 |
205,590 |
21.0 |
18.1 |
17.0 |
15.2 |
3.1 |
10.4 |
10.9 |
10.3 |
9.1 |
1.4 |
||
Corus Ent |
CAD |
5.38 |
1,141 |
13.0 |
6.0 |
6.5 |
5.7 |
1.8 |
5.1 |
5.2 |
5.2 |
7.1 |
7.5 |
7.0 |
8.7 |
Spin Master |
USD |
43.96 |
4,489 |
14.5 |
30.3 |
21.2 |
18.7 |
2.1 |
13.8 |
10.8 |
10.1 |
21.6 |
14.2 |
13.0 |
0.0 |
Amuse |
JPY |
2663 |
49,594 |
14.1 |
8.8 |
17.5 |
17.1 |
0.5 |
5.3 |
5.7 |
1.3 |
||||
Average |
9.7 |
23.0 |
16.8 |
13.9 |
2.4 |
10.1 |
8.3 |
7.5 |
24.9 |
12.4 |
10.9 |
1.7 |
|||
Mondo TV |
EUR |
1.189 |
42 |
-15.1 |
-2.1 |
11.3 |
9.1 |
1.5 |
2.6 |
2.0 |
1.5 |
-1.0 |
4.6 |
3.6 |
0 |
Discount (%) |
N/A |
33 |
34 |
36 |
74 |
76 |
80 |
104 |
63 |
67 |
100 |
Source: Refinitiv, Edison Investment Research. Note: Priced at 17 September 2019.
We adjust Mondo TV’s EV for the value of minorities in quoted subsidiaries. It continues to trade at a substantial discount to the global peer set across all relevant metrics. EBITDA ratios are difficult to compare in this peer group due to the varying treatments of capitalisation of production costs, which is less of an issue for Mondo TV than for some of the others. We therefore prefer to compare on EV/EBIT. Parity on this basis would imply a share price of €2.82 (€2.89 in May), more than double the current level. On a P/E basis, again averaged across years one and two, parity equates to a share price of €1.75 (was €1.95).
Exhibit 3: Financial summary
€m |
2016 |
2017 |
2018 |
2019e |
2020e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
27.4 |
32.0 |
18.9 |
20.8 |
27.8 |
Cost of Sales |
(9.3) |
(8.3) |
(7.7) |
(6.4) |
(8.6) |
||
Gross Profit |
18.1 |
23.7 |
11.2 |
14.4 |
19.1 |
||
EBITDA |
|
|
18.1 |
23.7 |
11.2 |
14.4 |
19.1 |
Operating Profit (before amort. and except.) |
|
12.7 |
17.6 |
(30.6) |
6.3 |
8.1 |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
(23.9) |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
12.7 |
17.6 |
(54.5) |
6.3 |
8.1 |
||
Net Interest |
0.0 |
(2.2) |
0.5 |
(0.3) |
(0.3) |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
12.7 |
15.4 |
(30.1) |
6.0 |
7.8 |
Profit Before Tax (reported) |
|
|
12.7 |
15.4 |
(54.0) |
6.0 |
7.8 |
Reported tax |
(4.5) |
(3.1) |
11.5 |
(1.7) |
(2.2) |
||
Profit After Tax (norm) |
8.3 |
12.3 |
(22.0) |
4.3 |
5.6 |
||
Profit After Tax (reported) |
8.3 |
12.3 |
(42.5) |
4.3 |
5.6 |
||
Minority interests |
0.3 |
0.5 |
3.0 |
(0.7) |
(1.0) |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
8.6 |
12.8 |
(19.0) |
3.6 |
4.6 |
||
Net income (reported) |
8.6 |
12.8 |
(39.5) |
3.6 |
4.6 |
||
Average Number of Shares Outstanding (m) |
27 |
30 |
34 |
35 |
36 |
||
EPS - normalised (c) |
|
|
31.1 |
43.0 |
(56.3) |
10.3 |
12.8 |
EPS - normalised fully diluted (c) |
|
|
31.1 |
43.0 |
(56.3) |
10.3 |
12.8 |
EPS - (c) |
|
|
31.1 |
43.0 |
(117.0) |
10.3 |
12.8 |
Dividend per share (c) |
2.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Revenue growth (%) |
63.2 |
16.8 |
(40.9) |
10.2 |
33.2 |
||
Gross Margin (%) |
66.0 |
74.0 |
59.2 |
69.3 |
69.0 |
||
EBITDA Margin (%) |
66.0 |
74.0 |
59.2 |
69.3 |
69.0 |
||
Normalised Operating Margin |
46.4 |
54.9 |
(162.0) |
30.4 |
29.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
37.0 |
47.9 |
46.0 |
51.6 |
52.3 |
Intangible Assets |
31.4 |
44.1 |
30.9 |
36.5 |
37.1 |
||
Tangible Assets |
0.3 |
0.4 |
0.4 |
0.4 |
0.4 |
||
Investments & other |
5.3 |
3.4 |
14.7 |
14.7 |
14.7 |
||
Current Assets |
|
|
37.8 |
53.6 |
37.2 |
36.8 |
51.4 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
31.7 |
47.9 |
20.6 |
21.5 |
28.7 |
||
Cash & cash equivalents |
1.8 |
2.4 |
12.4 |
11.2 |
18.6 |
||
Other |
4.3 |
3.3 |
4.2 |
4.2 |
4.2 |
||
Current Liabilities |
|
|
(14.0) |
(22.6) |
(25.1) |
(24.4) |
(31.3) |
Creditors |
(11.7) |
(15.0) |
(21.6) |
(20.3) |
(27.2) |
||
Tax and social security |
(0.2) |
(0.4) |
(0.5) |
(0.5) |
(0.5) |
||
Short term borrowings |
(2.1) |
(3.6) |
(3.0) |
(3.7) |
(3.7) |
||
Other |
0.0 |
(3.7) |
(0.0) |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(0.8) |
(1.2) |
(1.9) |
(2.5) |
(2.5) |
Long term borrowings |
(0.6) |
(0.7) |
(1.3) |
(2.5) |
(2.5) |
||
Other long term liabilities |
(0.2) |
(0.5) |
(0.6) |
(0.1) |
(0.1) |
||
Net Assets |
|
|
60.0 |
77.7 |
56.1 |
61.5 |
69.8 |
Minority interests |
0.0 |
(0.6) |
2.1 |
0.7 |
1.0 |
||
Shareholders' equity |
|
|
60.0 |
77.1 |
58.2 |
62.2 |
70.9 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
18.1 |
23.7 |
11.2 |
14.4 |
19.1 |
||
Working capital |
(1.9) |
(11.2) |
6.0 |
(2.2) |
(0.3) |
||
Exceptional & other |
0.7 |
(0.8) |
(11.0) |
0.0 |
0.0 |
||
Tax |
(4.5) |
(3.1) |
11.5 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
12.5 |
8.7 |
17.6 |
12.2 |
18.9 |
Capex |
(20.6) |
(19.2) |
(28.6) |
(13.1) |
(11.1) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
(0.2) |
(0.2) |
0.0 |
(0.3) |
(0.3) |
||
Equity financing |
7.2 |
9.4 |
20.9 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.3 |
0.1 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(0.7) |
(1.2) |
10.0 |
(1.2) |
7.4 |
||
Opening net debt/(cash) |
|
|
0.2 |
0.9 |
2.0 |
(8.0) |
(5.0) |
FX |
(0.1) |
0.1 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
(1.8) |
0.0 |
||
Closing net debt/(cash) |
|
|
0.9 |
2.0 |
(8.0) |
(5.0) |
(12.4) |
Source: Company data, Edison Investment Research
|
|
Research: Financials
Park Group’s AGM statement says that trading in the first five months of the current financial year has been in line with management expectations and provides an update on implementation of the strategic business plan aimed at boosting medium-term growth. Shareholders also approved changing the name of the group to Appreciate Group, which the board believes will better reflect the company’s product and market position as an innovative payments, savings and rewards provider.