Mondo TV. Guidance raised for full year. H117 highlights: Strong licensing sales. Outlook: Net profit guidance raised
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1 Mondo TV Guidance raised for full year Interims; raised guidance Media Mondo s licensing activities advanced significantly in the first half of the year, supporting a 67% increase in net profit. With Mondo s developed pipeline, we are confident regarding delivery of the group s FY17 budget and we increase our FY17e net profit by 5%, broadly in line with management s raised guidance. We believe Mondo s c 30% valuation discount to peers is unwarranted given the improving record of delivering to plan. Year end Revenue ( m) EBIT ( m) PBT* ( m) EPS* ( ) DPS (c) EV/EBIT 12/ / /17e /18e Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. P/E 6 October 2017 Price 4.59 Market cap 139m Net debt ( m) at end June Shares in issue 30.2m Free float 52% Code MTV Primary exchange Borsa Italiana Star Secondary exchange N/A Share price performance H117 highlights: Strong licensing sales Mondo s first half results demonstrate the significant progress the group has made in developing its licensing business over the last year. Revenues, which increased by 34% y-o-y to 15.3m, include 10.6m licensing sales (H116: 0.3m). While production and rights sales were lower than the same period last year, this is a function of the timing of deliveries rather than a lack of projects. We expect these revenues to increase in the second half of the year, with the completion of Season 2 (S2) of Sissi and additional episodes of Invention Story and The Rowly Powlys. We also understand that there are a number of rights deals pending. EBITDA of 11.1m increased by 40%, due to mix effects, as well as the ongoing benefit from the group s reorganisation. Inclusive of foreign exchange loss on the translation of its receivables balance, net profit increased by 67% to 5.7m. Outlook: Net profit guidance raised Post period end, Mondo also announced the extension of its new teen fiction show Heidi for another two series, and the deepening of its involvement in Robot Trains, where it is currently involved in the licensing and distribution, to also become coproducer on the next season. This demonstrates management s confidence in the development of these newer brands and further underpins Mondo s five-year plan to deliver EBITDA of 64m by Management has slightly increased guidance for net profit this year by 3% from 11.6m to 12.0m. Given the good start to the year, we mirror this guidance in our forecasts. Valuation: Discount to children s entertainment peers The shares have responded positively to the increased guidance. Nevertheless, they continue to trade a discount to peers in the children s entertainment space and other Italian media stocks. Given the group s improving track record, strong pipeline and significantly higher EBIT margins than peers, we believe this is unjustified. Announcements of additional licensing deals or significant new partners should help build confidence in the deliverability of its 2020 plan and close the c 30% FY18 EV/EBIT and P/E discounts to peers. % 1m 3m 12m Abs Rel (local) (27.1) 52-week high/low Business description Mondo TV is a global media group with a focus on the production, acquisition and exploitation of animated children s television series. Headquartered in Rome, it also holds controlling stakes in listed subsidiaries Mondo TV France (47%), Mondo TV Suisse (67%) and Mondo TV Iberoamerica (72%). It owns the rights to over 1,500 TV episodes and films, which it distributes across 75 markets. 80% of revenues are generated in Asia, 10% in Italy, 7% in Europe and 3% in America. Next events Q3 trading update 14 November 2018 Analysts Bridie Barrett +44 (0) Fiona Orford-Williams +44 (0) media@edisongroup.com Edison profile page Mondo TV is a research client of Edison Investment Research Limited
2 H117 results highlights: Delivering to plan Mondo s H117 results were broadly as reported in July s trading update. Total revenues of 15.3m increased 34% y-o-y, driven by very strong performance in licensing and internationally, in line with the group s strategy: Licensing revenues were 10.6m (H116: 0.3m), principally due to the contribution from Playtime Buddies, The Rowly Powlys and Sissi. In the second half of the year management anticipates first sales from its new flagship brand, Robot Trains. Rights sales at 1.9m (H116: 5.4m) which, along with library sales, reflect first sales for Season 1 (S1) of Heidi and Final Fight. A number of rights deals are pending and management expects them to close in the second half of the year. Production revenues of 2.7m (H116: 5.7m) reflects the delivery of Sissi for Broadvision, S1 of Invention Story (part of the $25m four-year York contract) and its Abu Dhabi Media contract. Production revenues can be fairly lumpy, subject to the delivery dates of key projects. In the second half of the year management expects to see a stronger contribution from production with the planned completion of Sissi S2, further deliveries of Invention Story, and The Rowly Powlys. In an effort to increase efficiencies, as well as the change in revenue mix towards higher-margin licence sales, last year s reorganisation enabled EBITDA to increase by 40% to 11.1m. After a 3.1m amortisation of the library, EBIT increased by 52% to 8.0m. Finance costs of 1.2m include 1m foreign currency translation effects in the value of the group s dollar-denominated trade receivables. Including this charge and 1.4m tax (21% effective rate), net profit increased by 67% to 5.7m. Exhibit 1: Summary interim results and updated forecasts m H116 H117 Change H217e 2017e 2018e 2019e y-o-y P&L Total revenue from sales and services % Other revenues Capitalisation of internally produced series Total revenues % EBITDA % EBITDA margin 70% 72% 75% 74% 70% 71% EBITA % EBITA margin 46% 52% 53% 53% 36% 39% PBT Net profit % EPS - adjusted basic ( ) Cash flow EBITDA tax (2.6) (2.6) (3.5) (6.1) (5.8) (6.9) changes in working capital 0.4 (6.6) (0.3) (6.9) 0.9 (3.9) Operating cash flow Investment in content (8.8) (7.7) (13.8) (21.5) (22.0) (22.5) Free Cash flow (3.1) (5.9) (0.9) (6.8) Share issue New borrowings 3.9 (3.9) 0.0 Interest costs and change in borrowings (0.1) (0.4) (0.3) (0.3) Net cash flow Closing cash Gross debt (6.3) (2.7) (2.7) (2.7) (2.7) Net cash/(debt) (2.2) Source: Reported interims Mondo TV, Edison Investment Research (forecasts) Mondo TV 6 October
3 Outlook: Budget underpinned by pipeline As outlined in our July 2017 initiation, World-class animations group, Mondo has a well-developed pipeline, which underpins its five-year plan to deliver EBITDA of 64m by It has had a good start to the year, and management has increased its guidance for net profit for FY17 from 11.6m to 12.0m. (Given that this includes 1m of foreign exchange losses, the underlying increase is more significant.) We are also encouraged by the group s recent announcements with regard to the extension of its interest in Heidi for an additional two series, as well as a deepening of its role in Robot Trains (for CJ E&M), from distributor and licensing agent (S1) to co-producer on S2, which further supports the business plan in the coming years. Although we expect margins, which should have a greater share of production sales than H1, to come down in the second half (Exhibit 3 summarises the key elements in the pipeline), we believe management is on track to deliver its increased FY17 budget and we are updating our forecasts to reflect this, as summarised in Exhibit 2. Exhibit 2: Summary forecast changes m 2017e 2018e Old New Change Old New Change Revenues % % EBITDA % % EBITDA margin 68.8% 73.9% 7.4% 70.3% 70.3% 0.0% Normalised operating profit % % Normalised operating profit margin 47.5% 52.6% 5.1% 35.7% 35.7% 0.0% Normalised net income % % Reported net income % % Normalised diluted EPS ( ) % % Net cash % % Source: Edison Investment Research Cash flow During the first half Mondo invested 7.7m in content and 6.6m of working capital was absorbed, principally in relation to the production of Invention Story, Beastkeepers, Partidei, Sissi and The Rowly Powlys as well as Heidi. We expect investment in content to increase in the second half, reflecting the strong production pipeline, but working capital requirements should moderate as H1 royalties are collected. Inclusive of a further 13.8m investment in content acquisition and production (Heidi S2, Invention Story, Sissi S2 and S3), we forecast year-end net cash of 0.6m (from 2.0m previously forecast). In July 2016 Mondo reached an agreement with Atlas Alpha Yield Fund (Atlas) and Atlas Capital Markets (ACM) for the issue of up to 15m of convertible bonds ( 250k each). Net debt at June 2017 of 2.2m includes a further 3.75m of these bonds (which have subsequently all converted) meaning that to date 12m of the 15m facility has been called. We no longer expect the full facility to be issued by the year end and update our forecasts to assume that the remaining 3m is drawn in Mondo TV 6 October
4 Exhibit 3: Summary of key production schedules Show H217 H118 H Invention In production In production In production In production In production story Start deliveries Deliveries Deliveries Deliveries Deliveries TV sales TV sales TV sales TV sales Worldwide licensing Worldwide licensing Worldwide licensing. Heidi Production S2 Production S3 TV sales S1 Latam TV sales S1-2-3 worldwide TV sales S1-2-3 worldwide TV sales S1-2-3 worldwide TV sales S1-2-3 worldwide Licensing Latam Licensing worldwide Licensing worldwide Licensing worldwide Licensing worldwide. Sissi End production S2 Production S3 End production S3 Production S4 Production S5 Start production S 3 TV sales series 1-2 TV sales series 1-3 TV sales series 1-4 TV sales series 1-5 TV sales series 1-2 Licensing series 1-2 Licensing series 1-3 Licensing series 1-4 Licensing series 1-5 Licensing series 1-2 YooHoo Delivery first episodes Delivery 39 episodes Delivery all series TV sales Pay/VOD TV sales free TV TV sales TV sales TV sales Worldwide licensing Worldwide licensing Worldwide licensing Worldwide licensing Worldwide licensing Master toy licence worldwide Source: Edison Investment Research, Mondo TV. Note: S = season. Valuation Exhibit 4: Summary peer comparison As before, we have adjusted (upwards by 14m) Mondo s headline enterprise value for the minority values of the listed subsidiaries. We also prefer to look to FY18 multiples given the expected increase in amortisation and the dilutive impact of the convertible. On this more conservative basis, Mondo trades on an EV/EBIT multiple of 7.7x in FY17 and 8.6x in FY18, and a P/E multiple of 10.4x in FY17 and 12.1x in FY18. Compared to the average of peers in the children s entertainment sector, as well as other Italian media groups (Exhibit 4), Mondo trades at a 31% EV/EBIT discount in FY18, despite its significantly higher EBIT margin, and a 33% P/E discount. Announcements of additional licensing deals or significant new partners should help build confidence in the deliverability of its ambitious targets and close discount to peers. Name Market cap (m) Sales growth (%) EBIT margin (%) EBITDA margin (%) EV/Sales EV/EBIT 1FY 2FY Last Last 1FY 2FY 1FY 2FY Last 1FY 2FY Mondo TV Children s entertainment: DHX Media C$ Entertainment One 1, Xilam Animation N/A N/A Toei Animation 164, N/A N/A Amuse inc 50,619 (9) N/A N/A Italian media peers: Mediaset 3,437 3 (5) (5) Mondadori (0) Rai Way spa 1, Gedi Gruppo Editoriale Italiaonline 382 (12) Triboo 77 N/A N/A N/A N/A N/A Dada Axelero Digitouch Average children s entertainment Average Italian media sector Source: Bloomberg (Mondo multiples based on Edison forecasts) Note: Mondo adjusted for minorities; 1FY = first forecast year. Priced at 4 th October. PE Mondo TV 6 October
5 Exhibit 5: Financial summary 'm e 2018e 2019e 31-December IFRS IFRS IFRS IFRS IFRS IFRS INCOME STATEMENT Revenue Cost of Sales (3.8) (7.9) (9.3) (9.8) (14.8) (15.9) Gross Profit EBITDA Normalised operating profit Amortisation of acquired intangibles Exceptionals Share-based payments Reported operating profit Net Interest (0.4) (0.1) 0.0 (1.3) (0.3) (0.3) Joint ventures & associates (post tax) Exceptionals Profit Before Tax (norm) Profit Before Tax (reported) Reported tax (0.0) (2.2) (4.5) (6.1) (5.8) (6.9) Profit After Tax (norm) Profit After Tax (reported) Minority interests (0.1) (0.2) 0.3 (0.4) (0.8) (0.8) Discontinued operations Net income (normalised) Net income (reported) Basic average number of shares outstanding (m) EPS - basic normalised ( ) EPS - diluted normalised ( ) EPS - basic reported ( ) Dividend ( ) Revenue growth (%) #DIV/0! Gross Margin (%) EBITDA Margin (%) Normalised Operating Margin BALANCE SHEET Fixed Assets Intangible Assets Tangible Assets Investments & other Current Assets Stocks Debtors Cash & cash equivalents Other Current Liabilities (15.4) (14.5) (14.1) (14.7) (14.9) (15.2) Creditors (10.2) (10.9) (11.7) (12.3) (12.6) (12.9) Tax and social security (0.1) (0.1) (0.2) (0.2) (0.2) (0.2) Short term borrowings (3.9) (2.9) (2.1) (2.1) (2.1) (2.1) Other (1.3) (0.7) (0.1) (0.1) (0.1) (0.1) Long Term Liabilities (0.6) (0.4) (0.8) (0.8) (0.8) (0.8) Long term borrowings (0.2) (0.2) (0.6) (0.6) (0.6) (0.6) Other long term liabilities (0.4) (0.2) (0.2) (0.2) (0.2) (0.2) Net Assets Minority interests Shareholders' equity CASH FLOW Op Cash Flow before WC and tax Working capital (2.8) (0.4) (1.9) (6.9) 0.9 (3.9) Exceptional & other (0.5) Tax (0.0) (2.2) (4.5) (6.1) (5.8) (6.9) Net operating cash flow Capex (7.3) (9.8) (20.6) (21.6) (22.1) (22.6) Acquisitions/disposals Net interest (0.3) (0.2) (0.2) (0.3) (0.3) (0.3) Equity financing Dividends Other Net Cash Flow (0.7) Opening net debt/(cash) (0.6) (11.4) FX Other non-cash movements Closing net debt/(cash) (0.6) (11.4) (16.4) Source: Mondo TV (historics), Edison Investment Research (forecasts) Mondo TV 6 October
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Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. Frankfurt +49 (0) Mondo Schumannstrasse TV 34b 6 October High Holborn 295 Madison Avenue, 18th Floor Level 12, Office Frankfurt Germany London +44 (0) London, WC1V 7EE United Kingdom New York , New York US Sydney +61 (0) Pitt Street, Sydney NSW 2000, Australia
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