US media giants such as Amazon (US:AMZN) and Netflix (US:NFLX) are tough competitors, as Entertainment One (ETO) can attest. The continuing consumer shift towards subscription streaming services accelerated the decline in the home entertainment market during the first half, forcing the group to book a one-off £57m charge against certain assets in its film distribution business. The downturn in demand – coupled with fewer film releases – meant revenue for the film and television division declined by 7 per cent to £332m.
That offset a stronger performance for the family and brands division, which enjoyed a 29 per cent rise in both sales and underlying cash profits to £26m and £47m, respectively. Profit growth was aided by a reduction of more than a third in acquired content and productions. However, the division has been buoyed by the ongoing popularity of Peppa Pig and PJ Masks, with plans to further roll out merchandising for the former brand across China. Management expects to have almost 1,900 live licensing and merchandising contracts by the end of the next financial year. While Peppa Pig remains popular in the US and UK, eOne is particularly optimistic about the Asian market: the brand has surpassed 100bn video-on-demand views in China alone since launching there in October 2015.
What's more, eOne expects the second half to be stronger for film and TV, with underlying cash profits more skewed to this period. With its planned shift from film distribution activities towards production under way, around 120 total film releases are expected for the full year, down from the previously guided 140. And encouragingly – despite the cited impairment – the company’s library was worth a whopping $2bn (£1.6bn), up from $1.7bn in March.
Analysts at Numis forecast adjusted pre-tax profits of £157m and EPS of 24.5p for the year ending March 2019 (from £144m and 21.9p in FY2018).
| ENTERTAINMENT ONE (ETO) | ||||
| ORD PRICE: | 377p | MARKET VALUE: | £1.75bn | |
| TOUCH: | 376.8-377.4p | 12-MONTH HIGH: | 450p | LOW: 266p |
| DIVIDEND YIELD: | 0.4% | PE RATIO: | 70 | |
| NET ASSET VALUE: | 135p* | NET DEBT: | 65% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 413 | 2.3 | -0.5 | nil |
| 2018 | 405 | -40.1 | -9.9 | nil |
| % change | -2 | -1843 | +1880 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £637m, or 137p a share | ||||
