ITV Plc

ITV Plc (LON: ITV) is FTSE 250 index listed Media company founded in 1955 and headquartered in London, the United Kingdom. The Company operates as an integrated producer broadcaster that offers content with multiple platforms at a global level. 

Rationale for Valuation – Hold at GBX 122.27

• Despite the uncertain environment, the Company has delivered comparatively strong performance reflecting cost discipline and excellent operational execution.
• As per valuation metrics, P/E (10.91), EV/Sales (1.74) and Price/Cash Flow (12.55) multiples of ITV Plc are currently lower as compared to the corresponding multiples of the media industry. It reflects, shares are undervalued as compared to the industry
• The Company’s margin ratios are favourable compared to the industry medians. In terms of EBITDA Margin (industry median 20.7%), Operating Margin (industry median 11.5%) and Net Margin (industry median 6.4%), the Company fares better compared to the industry. This makes the Company a potential target for investment.
• From the technical standpoint, shares were trading well above the 200-day simple moving average prices (GBX 90.78), which reflects a possibility that stock price could move up in the short term.

Key Risks

• Due to the Company’s global operations, its financials are exposed to exchange rate fluctuations
• The Covid-19 pandemic induced disruptions could impact production of new media content
• Muted advertising revenue could affect the Company’s prospects going forward

Financial Highlights (for the year ended 31 December 2020 (FY2020), as on 19 April 2021)

  (Source: Company Website)

• Studio revenue was down ~27.2% YoY from GBP 1,882 million in FY2019 to GBP 1,370 million in FY2020 and advertising revenue was down ~10.8% YoY from GBP 1,768 million in FY2019 to GBP 1,577 million in FY2020.
• This led to total group revenue down ~16.1% YoY from GBP 3,885 million in FY2019 to GBP 3,260 million in FY2020.
• This also resulted in group adjusted EBITDA down ~21.4% YoY despite GBP 116 million of cost savings
• The muted adjusted EBITDA led to adjusted EPS down ~21.6% YoY from GBX 13.9 in FY2019 to GBX 10.9 in FY2020.
• Due to this, the Company did not offer any dividends in FY2020, However, the board intends to restore dividends as soon as possible. 

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters) 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a significant decline in financial performance in the financial year 2020. Both the revenue and profitability for the period declined. The Company’s end markets remained impacted by the covid-19 related restrictions and recovery pace in 2021 is dependent on easing in lockdown measures. Given the uncertainties in both the segments, the Company could not provide a clear guidance for FY2021. However, the management is monitoring the performance and is ready to take advantage of strong demand for quality content globally. The stock made a 52-week low and high of GBX 54.16 and GBX 128.55, respectively.

Based on the company’s robust cost savings guidance and support from valuation as done using the above method but considering the uncertainties and market dynamics, we have given the “Hold” recommendation on ITV Plc at the current market price of GBX 122.27 (as on 20 April 2021 at 8.25 AM GMT), while we would monitor the Company’s performance and revisit our stance accordingly.  

EQTEC Plc

EQTEC Plc (LON: EQT) is an FTSE AIM All-Share listed company, founded in 1997 and headquartered in Cork, Ireland. The Company is a provider of gasification technology for waste-to-energy projects in Ireland, Spain and the United Kingdom. It supplied and designs solutions to process more than 50 different types of feedstock. 

Investment Rationale – Expensive at GBX 2.00

• Despite the improved financial performance in H2 FY2020, the Company continues to operate in environment which is full of challenges and uncertainties.
• The Company incurred a loss of Euro 5.8 million in FY2020 which is ~61% up on the loss incurred in FY2019 (Euro 3.6 million)
• The Company’s margin ratios are extremely unfavourable compared to the industry medians. In terms of EBITDA Margin (industry median 47.1%), Pre-Tax Margin (industry median 17.3%) and Net Margin (industry median 9.7%), the Company fares extremely poorly compared to the industry. This makes the Company a poor target for investment.

Key Risks

• Any changes in regulations and government policies could affect the overall business of the Company.
• Due to uncertainty over lockdown, the Company’s material revenue generation has been hampered in the past and could be affected in near future.
• As the Company remained in losses, growth prospects and operations are dependent on external funding
• The foreign exchange fluctuations could impact the financial performance. 

Recent News

Agreement with Toyota: EQTEC Plc, on March 11, 2021, announced that they have signed a Collaboration Framework Agreement with Toyota Motor Manufacturing (UK) Limited to supply power and gas to the Toyota engine manufacturing site.

Dismissal of patient infringement claim: In March 2021, Aries Clean Energy LLC withdrew its patent violation complaint. Hence, EQTEC could produce and sell technology without any further harassment from Aries.

Trading Update (for the year ended 31 December 2020 (FY2020), as on 19 April 2021)

• Despite the challenging conditions, the FY2020 period saw ~32.5% YoY growth in revenue supported by growth in sales activity, pipeline and portfolio development
• However, higher costs led to net loss up ~61% YoY from Euro 3.6 million in FY2019 to Euro 5.8 million in FY2020.
• Still due to share issuance, the cash position was up ~1180% YoY from Euro 0.5 million in FY2019 to Euro 6.4 million in FY2020
• The Company does not offer any dividends due to loss making business

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters) 

Conclusion

The Company has shown an improvement in revenue in FY2020. Despite the higher revenue, the bottom-line performance declined, while profitability remained in the negative zone. However, the Company expects to have improved revenues of Euro 15 million in FY2021.The stock made a 52-week low and high of GBX 0.152 and GBX 3.17, respectively.

Based on the financial indicator shown above, we have given the “Expensive” recommendation on EQTEC Plc at the current market price of GBX 2.00 (as on 20 April 2021 at 8:30 AM GMT), while we would look forward to reviewing the benefits arising from the strong pipeline and contracts and revisit our stance accordingly.

 

*All forecasted figures and Peer/industry information have been taken from Refinitiv, Thomson Reuters.

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