Tom Winnifrith’s Conviction Buy
And so I am drawn instead to a stock that my pal Mark Slater owns in his funds and which he explained the merits of in his presentation at the UK Investor Show on April 13th. In case you missed his talk, the slides and a video of it can be found at www.shareprophets.com — the stock in question is Entertainment one (LSE:ETo) The shares traded at more than 200p into 2012 as the company announced it was “considering its strategic options, which may include a sale of the company in response to interest it has received from various parties”, but fell back when it later announced that it had concluded that “various proposals” for all or parts of the group “do not adequately reflect the company’s value”. Despite good progress subsequently, including “a key strategic” acquisition, the shares currently trade at 184p mid. The company is a leading independent entertainment group, which acquires, produces and distributes films, television programming and music as well as associated merchandising and licensing, internationally. Before the above noted acquisition — which completed in January — Entertainment One’s rights library included more than 24,000 film and television titles, 2,700 hours of television programming and 45,000 music tracks across a network including Canada, the U.S., the UK, Ireland, Benelux, France, Germany, Scandinavia, Australia, New Zealand and South Africa. The acquisition was of Alliance Films (the price c$225 million (£141 million), and up to Canadian $272 million). It is the largest independent film distributor in Canada and a leading independent distributor in the UK and Spain with a catalogue of more than 11,500 titles including some of the most commercially successful independently produced titles of the last twenty years such as ‘Pulp Fiction’, ‘Good Will Hunting’, ‘Lord of the Rings’, ‘The King’s Speech’ and ‘The Hunger Games’. It was emphasised that “as a result of the acquisition, Entertainment One will be a more competitive business in each of the geographic markets that we serve, allowing us to act as a more valuable partner for content producers and expanding the quality and depth of the content that we offer to our customers”. The deal particularly provides increased access to the most successful independent film studios and deepens the company’s global reach — including adding a material position in Spain.
CEO Darren Throop has more than 20 years executive management experience in the entertainment industry and has been with the group since 1999 and CEO since July 2003. His total remuneration for the year ended 31st March 2012 was just shy of £900,000 (including £431,000 salary & fees and the same in bonus payments) and he holds 5,965,562 shares in the company (2.2%). He is supported in an executive capacity by Patrice Theroux who has more than 25 years of experience in the motion picture distribution industry and 1,609,201 shares in the company (0.6%) and CFO Giles Willits, a chartered accountant and former director of group finance at Sainsbury plc, who has 1,645,744 shares (0.6%). Yes I do think that Throop is overpaid, but at least he is being rewarded for success not failure, and having a stake in the company worth c£11 million (or 24 times base salary) means his real incentive is share price gain, not base corporate troughery. The company most recently updated on trading on 27th March — reporting that film revenues are expected to be “significantly ahead” of the prior year, driven by over 200 theatrical releases (including more than 25 Alliance titles since acquisition) compared to 152 releases in the prior year, and that television revenues are anticipated to be approximately 15% ahead.
May 2013
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