Videndum needs to clear up picture on finances

News that a tentative deal had been agreed to end the five-month-long Hollywood writers’ strike brought a temporary reprieve to Videndum’s (VID) battered share price on Monday, but this proved short-lived once the company revealed the scale of the damage that has been done to its balance sheet.

The video equipment supplier’s revenue slumped by a quarter in the six months to 30 June, which the company blamed on the strike, as well as ongoing macroeconomic conditions that have led to its retail customers destocking. It reported a halving of adjusted operating profit to £15.2mn, but with cash being tight it also decided to exit both the medical imaging and gaming businesses. A £46.9mn impairment recorded on these led to a statutory operating loss of £49.3mn. 

The main issue the business now has to contend with is the increase in net debt, which rose by £22.6mn to £216mn, leading auditor Deloitte to warn of a “material uncertainty” for the business to continue in a severe but plausible downside scenario.

However, chief executive Stephen Bird said Videndum has “strong relationships” with lenders, which have renegotiated banking covenants to give it more headroom. He said the company is “looking at options to reduce leverage or recapitalise the business, and this may require an equity raise”.

This was enough to send the shares down by more than a third, bringing their 12-month decline to over 70 per cent. 

Videndum's shares trade at just five times forecast earnings, well below their five-year average of 15 times, according to FactSet. Yet as broker Jefferies pointed out, current consensus is based on a wide range of predictions, many of which are now “stale”. With EPS downgrades likely, we move to hold.

Last IC View: Buy, 951p, 28 Feb 2023