BULL POINTS:
■ Strong movie pipeline
■ Low risk model
■ Burgeoning special effects business
■ Growing Indian economy
BEAR POINTS:
■ Founders hold over 70 per cent of share capital
■ No dividend
Full-year results from Indian media production and distribution company Eros did not disappoint, but unlike the Greek God of Love, the company's shares remain unloved. This is surprising since Eros has consistently delivered strong sales and earnings growth since joining the Alternative Investment Market (Aim) in 2006, reflecting the company's low risk and successful approach in backing blockbusters.
Films are either co-produced with production companies - that are usually owned by the movie's star - or acquired. Eros then ensures that about 75 per cent of all costs associated in making a movie are recovered through pre-sales before the film has even been made. So, if the movie becomes a box office flop, Eros can still break even on it within a year. And, thanks to an extensive library of more than 2,000 films, the company can bundle films with a more popular movie, and sell them as a package to cinema operators or even TV broadcasters.
| IC TIP RATING | |
|---|---|
| Tip style | Value |
| Risk rating | Medium |
| Timescale | Medium term |
| What do these mean? Find out in our | |
But a flop is highly unlikely given Eros' impressive track record. The business produced five out the top 10 Bollywood box-office hits of 2010, and many more are in the pipeline for this year. Having already released 14 movies, Eros is waiting for Diwali which falls in October - to release its big blockbuster movie RA.One. The movie stars Bollywood mega stars Shah Rukh Khan and Kareena Kapoor, and the TV rights have already been sold to India's Star TV for $8.8m (£5.4m). To put that into context, last year's biggest selling Tamil movie - Robot - garnered $5.5m in satellite TV rights alone.
And TV distribution is a fast growing part of Eros' business. Sales there grew by 14.5 per cent to $60.6m in the 12 months to March 2011 and syndication deals have resulted in pre-sales of over $50m, which supports analyst revenue forecasts of $71m for for the current financial year.
Moreover, there is another burgeoning division within Eros - its special effects business EyeQube. EyeQube was formed two years ago and is being led by visual effects guru, Charles Darby. This is the man behind the effects in The Matrix and Harry Potter. EyeQube has worked on the production of a few Indian movies and even cracked the tough Hollywood market by working on futuristic blockbuster Tron: Legacy. The business offers Hollywood a cheaper means of producing these special effects features, and analysts believe EyeQube has the technology and ability to grow into a standalone operation eventually.
| ORD PRICE: | 227p | MARKET VALUE: | £264m | |
| TOUCH: | 226-228p | 12-MONTH HIGH / LOW: | 289p | 178.5p |
| DIVIDEND YIELD: | nil | PE RATIO: | 8 | |
| NET ASSET VALUE**: | 205p | NET DEBT: | 17% | |
| Year to 31 Mar | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2008 | 113 | 45.5 | 33.5 | nil |
| 2009 | 157 | 48.4 | 35.1 | nil |
| 2010 | 150 | 49.5 | 36.5 | nil |
| 2011 | 165 | 55.8 | 38.6 | nil |
| 2012* | 212 | 72.0 | 48.6 | nil |
| % change | +29 | +29 | +26 | - |
Normal market size: 3,000 Market makers: 7 Beta: 0.88 *Forecasts provided by Peel Hunt **Includes intangible assets of $439m, or 230p a share £1:$1.642 | ||||
Underpinning these growth drivers is the impressive rise of the Indian economy which is projected to grow 8 per cent in 2011, maintaining a trend of robust GDP growth in recent years. As a result, personal income levels have been growing and an increasing proportion of the population now have the disposable income to spend on media and entertainment. In fact, the Indian Chamber of Commerce is expecting the industry to grow by at least 14 per cent per year.
