Overview
 
Zoo Digital Group Plc (ZOO) is a technology company that offers localization and media production services. The company has differentiated its operations in three operating segments: Localisation, Digital Packaging and, Software Licensing. The group offers services over its cloud computing platforms, including ZOOsubs, ZOOcore, ZOOscreen, ZOOhive, ZOOvault, ZOOstudio and ZOOdubs.
 

 
Year End Trading Updates – 31^st March 2019
For FY19E, the group’s revenue is estimated to be around $29m against $28.5m reported last year.Total localisation revenue grew by 5% in FY 2019E to $22.6m. Cloud dubbing service revenue was up by 17%. During the period, the ZOO was engaged on initial projects for eight major TV and film production studios compared to four in the prior year. Despite the previously announced headwinds, which are still slightly evident in today’s news, the ZOO has continued to invest in proprietary technology and capacity. The launch of ZOOstudio has been ‘well received in the market’ with a ‘Product of the Year’ award at the prestigious NAB Show awards. A continued focus on strict working capital management saw the group end the financial year with a cash balance of $1.8m.

Financial Highlights (H1 FY2019, $000)

(Source: Interim Report, Company Website)

The company’s reported revenue surged by 17.04 per cent to $14.9 millionas compared to $12.7 million in H1 FY18, due to the strong growth seen in the dubbing services delivered using ZOOdubs cloud platform. Reported operating loss stood at $299 thousand as compared with the H1FY18 profit of $413 thousand. The loss before taxation increased from $137 thousand in H1 FY18 to $159 thousand in H1 FY19. The group’s loss and total comprehensive income for the period attributable to equity holders were $225 thousand (H1FY18: Profit $85 thousand). The basic and diluted loss per ordinary share stood at 0.30 cents. 

Share Price Performance
 
Daily Chart as at May-15-19, before the market closed (Source: Thomson Reuters)

On 15^th May 2019, at the time of writing (before the market close, GMT 8:43 AM), ZOO shares were trading at GBX 56.98, up by 5.52 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 176/GBX 43. The company’s stock beta was 0.34, reflecting lower volatility as compared to the benchmark index.

Valuation Methodology

(Note: All forecasted figures and peer information have been from Thomson Reuters. All USD figures have been converted into GBP; USD: GBP - 0.77).
 
Conclusion
The group has strong market positioning and readiness to benefit from its premium services. In the latest update, adjusted EBITDA will be around break even in the second half of the year 2019.The company’s board is very confident in both the long-term opportunity and ZOO’s ability to capitalise upon it. All the indicators suggest that the global media localisation market will continue to grow strongly, fuelled by demand for a greater volume of original content, delivered through an ever-expanding number of digital channels in a growing number of languages. The expansion of the localisation service into dubbing has significantly surged the breadth of the group’s offering, the size of the addressable market and enhanced competitive positioning. ZOO combines the power of cloud computing with its deep understanding and experience of the industry to create a highly valuable proposition, providing localisation and digital packaging services to a growing number of the world’s leading creators and distributors of film and TV entertainment. Based on the above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 54 (as on 14th May 2019) with single-digit upside potential based on 2.15x NTM EV/Sales multiple (approx.) on FY19E sales (approx.).
 
*The speculative buy recommendation is valid for the current price as covered in the report (as on 15^th May 19).

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