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Research: TMT
Technicolor’s FY20 results show it is on track to meet FY22 guidance, now adjusted for forex and the disposal of the post-production business. FY21 trading prospects are improved, with 75% of Production Services’ pipeline in place. Strong domestic broadband demand continues to buoy Connected Home, although the FY21 result may be dampened by delays from semiconductor shortages. Our forecasts align with guidance, which is for a marked margin uplift as revenues rebuild and the cost saving programme benefits kick in. FY20’s financial restructuring, coupled with the anticipated business improvements, should support cash flow generation and may act as a catalyst for an equity re-rating.
Technicolor |
Tracking for FY22 guidance |
Final results |
Media |
16 March 2021 |
Share price performance
Business description
Next events
Analysts
Technicolor is a research client of Edison Investment Research Limited |
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Technicolor’s FY20 results show it is on track to meet FY22 guidance, now adjusted for forex and the disposal of the post-production business. FY21 trading prospects are improved, with 75% of Production Services’ pipeline in place. Strong domestic broadband demand continues to buoy Connected Home, although the FY21 result may be dampened by delays from semiconductor shortages. Our forecasts align with guidance, which is for a marked margin uplift as revenues rebuild and the cost saving programme benefits kick in. FY20’s financial restructuring, coupled with the anticipated business improvements, should support cash flow generation and may act as a catalyst for an equity re-rating.
Year end |
Revenue (€m) |
EBITDA |
EBITA |
PBT* |
EPS* |
EV/EBITDA |
12/19 |
3,800 |
325 |
42 |
(73) |
(4.92) |
4.7 |
12/20 |
3,006 |
167 |
(56) |
(43) |
(0.38) |
9.1 |
12/21e |
2,933 |
270 |
60 |
(3) |
(0.03) |
5.6 |
12/22e |
3,255 |
385 |
180 |
117 |
0.46 |
4.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Routes to improving profitability
FY20 trading was as expected, with the strength of the Connected Home business boosted by high levels of demand for reliable home broadband and Wi-Fi, particularly in North America. Margins are beginning to show the benefits of earlier cost cutting and we expect this effect to be more pronounced in FY21. The knock-on effects of semiconductor shortages may lead to disruption in H121, but strong relationships with both suppliers and customers should help mitigate the impact. Production Services was heavily affected in FY20 by the extensive lockdowns putting paid to live action shoots. Better prospects here are underwritten by a strong pipeline in film and episodic special effects (VFX), as well as an increased focus on animation and gaming, which is a particularly promising market. DVD Services margin progress is predicated on new contracts and cost optimisation.
Adjustments for disposal, currency
Management guidance for FY21 and FY22 has been adjusted to take account of the disposal of the post-production business and revised forex assumptions. For FY21, this reduces adjusted EBITDA by €18m to €270m and adjusted EBITA by €28m to €60m. For FY22, adjusted EBITDA lowers €40m to €385m and adjusted EBITA by €23m to €180m. By FY22, management expects €325m run rate cost saving, €25m more than earlier indications. Free cash flow, before interest and tax, is now expected at around break-even for the current year (negative in H121, positive in H221, in the normal trading pattern) and c €230m for FY22 (128% expected EBITA).
Valuation: Confidence building
Since the completion of the financial restructuring in September 2020, the shares have risen from €1.16. The valuation is now starting to reflect the improving underlying trading, albeit that the equity remains dominated by the value of the debt (although no longer dwarfed). As confidence grows that guidance on profitability and cash generation can be achieved, we expect the rating to improve further.
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