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Future — Strong finish to FY18

Future — Strong finish to FY18

Future has now completed its acquisition of Purch, fully funded by a successful rights issue. Trading results in the core Media business are ahead of earlier management expectations for FY18, helped by some strong product launches and World Cup-related campaigns. We have finessed our indicative forecasts, including Purch, and updated to reflect the trading update and adjusted historic EPS for the bonus element of the rights. There are clear opportunities to leverage the Purch assets, generating incremental growth, which we believe justify a higher rating.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Future

Strong finish to FY18

Trading update

Media

10 September 2018

Price

449p

Market cap

£365m

£1: $1.30

Net debt (£m) at 31 March 2018 (pro forma for rights/Purch, but pre-Newbay)

1.1

Shares in issue

81.4m

Free float

99.5%

Code

FUTR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.5

4.8

66.1

Rel (local)

18.4

10.6

67.4

52-week high/low

471.3p

246.7p

Business description

Future is an international media group and leading digital publisher, with a scalable platform and a range of leading consumer brands. It operates two separately managed, brand-led divisions: Media and Magazine.

Next events

Full year results

23 November 2018

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Neil Shah

+44 (0)20 3077 5715

Future is a research client of Edison Investment Research Limited

Future has now completed its acquisition of Purch, fully funded by a successful rights issue. Trading results in the core Media business are ahead of earlier management expectations for FY18, helped by some strong product launches and World Cup-related campaigns. We have finessed our indicative forecasts, including Purch, and updated to reflect the trading update and adjusted historic EPS for the bonus element of the rights. There are clear opportunities to leverage the Purch assets, generating incremental growth, which we believe justify a higher rating.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV/EBITDA (x)

Yield
(%)

09/16

59.0

2.3

6.9

0.0

65.1

73.2

N/A

09/17

84.4

8.3

17.5

0.0

25.7

34.6

N/A

09/18e

118.6

15.5

19.9

1.0

22.6

19.0

0.2

09/19e

167.0

27.3

24.8

2.0

18.1

12.0

0.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Historical EPS restated for bonus element of rights issue.

Revisions to forecasts

At the time of the rights issue in July, we set out an indicative combined forecast income statement. For FY18e, this showed revenue of £114.6m and EBITDA of £18.4m. With the acquisition now completed (5 September), we have updated and formalised these numbers. The core trading uplift referred to in the pre-close statement is project specific to FY18e. We have raised our group revenue forecast to £118.6m, with a resulting 9% increase in EBITDA to £20.0m. For the following year, our revised revenue number of £167.0m is slightly lower than our initial estimate (£176.7m). This reflects three factors: a planned reduction in some less profitable business at Purch, other refining of the broader portfolio, and timing of an event that will now fall into FY20e. Our EBITDA projection for FY19e is unchanged at £31.8m. The historic EPS has now been adjusted to reflect the bonus elements of the rights, making the progression more evident.

Acquisitions improve the mix

Our July note described the Purch B2C business acquisition in some detail, outlining opportunities. In particular, Purch gives Future the scale needed to be a credible proposition to US advertisers in the attractive consumer technology market. Allied to the earlier acquisition of Newbay, the group now has a good revenue balance between the US and other markets, with a broad range of content and an attractive mix of different income streams.

Valuation: Clear upside

At 449p, Future’s shares are trading at a discount of around 8% to our blended peer set on an EV/EBITDA basis for FY19e, despite the premium growth and expanding EBITDA margin. Looking at a DCF on unchanged assumptions of a conservative 7% medium-term, top-line growth and with the EBITDA margin growing to 23% (reflecting the shift in mix more towards Media), we derive a suggested valuation of 564p, 26% ahead of the current level.

Exhibit 1: Financial summary

£'m

2015

2016

2017

2018e

2019e

30 September

IFRS

IFRS

IRFS

IRFS

IRFS

INCOME STATEMENT

Revenue

 

 

59.8

59.0

84.4

118.6

167.0

Cost of Sales

(40.6)

(16.0)

(23.4)

(38.2)

(41.0)

Gross Profit

19.2

43.0

61.0

80.4

126.0

EBITDA

 

 

3.7

5.2

11.0

20.0

31.8

Operating Profit (before amort. and except.)

 

0.7

2.8

8.9

17.0

28.8

Amortisation on acquired intangibles

(2.3)

0.0

(2.3)

(8.3)

(14.8)

Exceptionals

(2.5)

(16.5)

(3.7)

(4.6)

(1.5)

Share-based payments

(0.1)

(0.5)

(2.1)

(4.0)

(4.0)

Reported operating profit

(4.2)

(14.2)

0.8

0.1

8.5

Net Interest

(0.6)

(0.5)

(0.6)

(1.5)

(1.5)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

0.1

2.3

8.3

15.5

27.3

Profit Before Tax (reported)

 

 

(2.3)

(14.9)

0.2

(1.4)

7.0

Reported tax

0.3

0.5

1.4

0.3

(1.4)

Profit after tax (norm)

0.4

2.3

8.6

12.4

21.8

Profit after tax (reported)

(2.0)

(14.4)

1.6

(1.1)

5.6

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.7

0.2

0.0

0.0

0.0

Net income (normalised)

0.5

2.3

8.6

12.4

21.8

Net income (reported)

(1.3)

(14.2)

1.6

(1.1)

5.6

Average Number of Shares Outstanding (m)

22

32

45

56.9

82

EPS - basic normalised (p)

 

 

2.3

7.1

19.0

21.8

26.6

EPS - normalised, diluted (p)

 

 

2.2

6.9

17.5

19.9

24.8

EPS - basic reported (p)

 

 

(5.9)

(43.9)

3.5

(2.0)

6.8

Dividend per share (p)

0.0

0.0

0.0

1.0

2.0

Revenue growth (%)

(9.4)

(1.3)

43.1

40.5

40.8

Gross margin (%)

32.1

72.9

72.3

67.8

75.5

EBITDA margin (%)

6.2

8.8

13.0

16.9

19.0

Normalised operating margin (%)

1.2

4.7

10.5

14.3

17.2

BALANCE SHEET

Fixed assets

 

 

44.9

36.1

97.9

207.0

191.8

Intangible assets

43.8

33.2

92.3

199.8

184.5

Tangible assets

0.6

0.5

1.0

2.3

2.4

Investments & other

0.5

2.4

4.4

5.7

4.7

Current assets

 

 

19.5

15.8

24.5

43.2

60.5

Stocks

0.5

0.4

0.7

0.7

0.7

Debtors

15.3

12.4

13.6

38.0

41.9

Cash & cash equivalents

2.5

2.9

10.1

4.4

17.8

Other

1.2

0.1

0.1

0.1

0.1

Current liabilities

 

 

(25.9)

(25.1)

(36.4)

(57.8)

(58.7)

Creditors

(20.7)

(21.4)

(29.9)

(44.5)

(45.4)

Tax and social security

(0.9)

(1.4)

(3.2)

(3.2)

(3.2)

Short-term borrowings

(4.3)

(2.3)

(3.2)

(10.0)

(10.0)

Other

0.0

0.0

(0.1)

(0.1)

(0.1)

Long-term liabilities

 

 

(7.1)

(5.6)

(24.7)

(28.8)

(21.8)

Long-term borrowings

0.0

(0.1)

(16.9)

(15.1)

(11.7)

Other long-term liabilities

(7.1)

(5.5)

(7.8)

(13.7)

(10.1)

Net assets

 

 

31.4

21.2

61.3

163.5

171.8

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

31.4

21.2

61.3

163.5

171.8

CASH FLOW

Operating cash flow before WC and tax

0.8

5.2

11.0

20.0

31.8

Working capital

(8.0)

(2.1)

4.7

2.0

(3.0)

Exceptional & other

(0.4)

0.0

(3.7)

(5.1)

(1.5)

Tax

(0.5)

(0.7)

(1.4)

(4.6)

(5.0)

Net operating cash flow

 

 

(8.1)

2.4

10.6

12.3

22.3

Capex

(2.0)

(2.5)

(2.6)

(2.6)

(2.6)

Acquisitions/disposals

1.3

(0.3)

(31.8)

(119.6)

0.0

Net interest

(0.6)

(0.4)

(0.6)

(1.5)

(1.5)

Equity financing

0.0

3.1

21.0

102.0

0.0

Dividends

0.0

0.0

0.0

0.0

(1.4)

Other

0.0

(0.1)

0.2

0.0

0.0

Net cash flow

(9.4)

2.2

(3.2)

(9.4)

16.8

Opening net debt/(cash)

 

 

(7.5)

1.8

(0.5)

10.0

19.4

FX

0.1

0.1

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

(7.3)

0.0

0.0

Closing net debt/(cash)

 

 

1.8

(0.5)

10.0

19.4

2.6

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Future and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

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