Editorial Contributor
It added that it plans to release over 275 films theatrically during the next financial year, including ‘The Hunger Games:Catching Fire’, ‘RED 2’, ‘Now You See Me’ and ‘Ender’s Game’, and also has a “strong” television pipeline, including “‘Peppa Pig’ maintaining its status as the #1 pre-school toy licensed property in the UK, and rolling-out in numerous international markets”. Results for the year ended 31st March 2013 are expected “to be in line with management expectations”, with the integration of Alliance “proceeding ahead of schedule with synergies being delivered more quickly than originally anticipated”. The business is inherently dependent on audience acceptance of its programming — meaning production of and relationships with producers of good-quality content is key. This requires significant financial investment and the maintenance of strong relationships with content producers in what is a competitive marketplace. The acceptance and timing of releases can result in the group’s financial results fluctuating, though its enlarged size — the integration of Alliance seemingly currently going well — should mitigate this risk somewhat. There is, though, still the possibility of Alliance integration challenges emerging. The company also currently finances a significant portion of its production budgets from certain governmental incentive programs and tax credits in Canada — and there is thus risk of any adverse change in these. There is also a need to adapt to the regularly changing formats of entertainment delivery.
56 | www.financial-spread-betting.com | May 2013
However, the company looks well positioned to benefit from an overall market which is expected to continue to grow and to exploit emerging digital opportunities. Following the Alliance Films acquisition, net debt is estimated at £115 million with a pre-tax profit of approaching £50 million (earnings per share of circa 15p) pencilled in for the year just ended, £73.5 million (earnings per share of around 19p) forecast for the current year and 21p provisionally estimated for next year. There is no dividend currently as the company focuses on investing for growth, but a price-earnings multiple of 9.2x falling to 8.3x looks harsh given that the debt looks comfortably manageable and the positive prospects for the enlarged business. Joint broker to the company, Cenkos, argues that “the increased scale, track record and growth prospects of the enhanced group warrants a re-rating”, whilst fellow brokerage Peel Hunt most recently updated that “we remain positive on the company’s attractive and low-risk content model” and has a 250p target price. Paid for researcher Edison concluded an update on the company earlier this week: “…our Discounted Cash Flow and sum-of-the-parts also point to a value of 254-262p… Thus we see plenty of upside as the progress of the enlarged group becomes more apparent, and as eOne begins to attract a wider investor base now that its market capitalisation has passed the £500 million mark.”