Entertainment One Ltd. (ETO) is an independent studio and develops, acquires, produces, finances, distributes and sells content rights and entertainment content. eOne distributes and sells films in theatres, digitally, and through DVD. Its brands include PJ Masks, Peppa Pig, Ben & Holly's Little Kingdom, Cupcake & Dino. The company has operations in the US, UK, Australia, Canada, Benelux, Germany and Spain.

Recent News
On 11^th April 2019, Entertainment One UK Holding Ltd, a unit of Entertainment One Ltd, acquired the entire share capital of Audio Network Ltd, a London-based music publisher, for a total consideration of GBP 178 million.

Financial Highlights (H1 FY2019, £million)

(Source: Interim Report, Company Website)

The company’s reported revenue marginally declined by 1.9 per cent to £404.9 millionas compared to £412.7 million in H1 FY2018, due to the fewer film releases and deliveries and also due to the accelerated decrease of the home entertainment market. Reported underlying EBITDA increased from £54.5 million to £60.1 million, due to the strong growth in Family & Brands and marginally offset by the decline in Film & Television. Adjusted operating profit rose by 12 per cent to £58.7 millionas compared with the H1 FY18 data of £52.6 million, due to the increase in the company’s adjusted and reported EBITDA. Adjusted profit before tax increased by 7 per cent to £42 million (H1 FY18: £39.2 million).Adjusted profit of the year increased from £29.7 million in H1 FY18 to £31.3 million in H1 FY19. Adjusted diluted earnings per share surged by 1 pence to 6.1 pence against the 5.1 pence in H1 FY18. The Board declared a final dividend per share of 1.4 pence in FY18, an increase of 0.1 pence as compared to 1.3 pence in FY17.

Share Price Performance

Daily Chart as at May-13-19, after the market closed (Source: Thomson Reuters)

On 13^th May 2019, ETO shares closed at GBX 444.40, down by 1.985 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 485.40/GBX 277.20. The company’s stock beta was 0.97, reflecting slightly lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
Audio Network is a harmonious acquisition and a strong strategic fit – strengthening content/IP value underpinning, upsizing the growing Music business, adding recurring/repeatable revenue as well as growth, margin and cash flow accretion. The company’s strong operating performance, strong market position and broad portfolio of services are its major strengths, even as increasing trade receivables remain an area of concern.Going forward, piracy, regulatory procedures and intellectual property risks may impact the company’s performance.However, the ongoing productions, strong business partnerships and strategic acquisitions are likely to present new growth opportunities to the company. Based on the above factors and supported by valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 444.40 (as on 13th May 2019) with single-digit upside potential based on 8.5x NTM Price/Cash Flow multiple (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from the Thomson Reuters.

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