UPDATE: Shares in Entertainment One rallied 15 per cent on Wednesday after the group reassured investors that trading remained on track and that the debt issue supported its growth ambitions. Chief Darren Throop also shelled out £183,000 on shares in the company.
Investors sent shares in Entertainment One (ETO) down more than a quarter in two days after the group unveiled plans to raise £285m via a debt issue at a higher than expected coupon rate of about 6.9 per cent. The move prompted several city analysts to cut their target prices or downgrade their recommendations.
The film-and-TV distributor and producer intends to use the proceeds to repay debt and for working capital. It also plans to replace its existing financing arrangements with a new £100m credit facility. Broker Investec argues that it made sense for the group to complete necessary refinancing as soon as possible, given the likelihood of interest rate hikes in the US and UK.
The debt issue follows a mixed first half for the group: adjusted film revenue fell 13 per cent as movie studios delayed theatrical releases, but underlying cash profit in the TV business leapt a quarter as it produced more series and benefited from an exclusive deal with AMC.
Investec expects the debt issue to translate into about £7m in annual net finance charges. It expects EPS to fall 3 per cent to 19.3p in the year to March 2016 (19.8p in FY2015). However, N+1 Singer analysts expect more secure financing to enable management to spend around £50m-£60m on acquisitions, possibly relieving pressure on earnings.
