Hedge fund ShadowFall has launched an attack on Future (FUTR), accusing the media group of making a series of poor quality acquisitions that had masked a weak organic growth rate.
The criticisms came just one trading day before management revealed that it expected the outcome for the full year to be materially ahead of market expectations, following growth in higher margin revenue and a boost to audience numbers in its media division. Shares in the group have more than doubled in value over the past 12 months.
ShadowFall - which has taken a short-position in Future’s shares - has claimed the specialist publisher’s enterprise value of 4.5 times forecast sales for 2020 reflects overly-optimistic expectations of the growth prospects of its multiple acquisitions, which have contributed 79 per cent of revenue over the past three years, according to its calculations. “When we reviewed what Future has bought, it doesn’t strike us as being all that great,” argued ShadowFall.
A spokesperson for Future declined to comment on the contents of the ShadowFall report.
The asset manager has disputed the 11 per cent organic growth figure stated by Future for 2019, claiming that by using goal seek analysis, the only way it could arrive at that figure is by assuming the businesses it acquired in 2018 experienced a collective revenue contraction of 11 per cent.
It argued that the organic revenue growth rate for 2019 was more likely to be just 1 per cent, based on the group stating that its organic like-for-like revenue growth excluded all its acquisitions made in 2018 and 2019 and that the businesses Future acquired in 2018 and 2019 failed to grow from the point of acquisition.
Shadowfall questioned the quality of the companies purchased, arguing that “many of the acquired assets have long histories of decline and incur all too frequent reorganisation costs”. It references the October acquisition of TI Media, the group’s most expensive to date, which it has calculated incurred a total of £92m in reorganisation costs between 2013 and 18 and recorded a decline in revenue of 40 per cent since 2010, or at a compound annual rate of -5.6 per cent.
The short-seller also raised concerns over instances of buying back businesses that the media group has previously sold, including Team Rock, which was initially sold in 2013. The company - which owned titles including Classic Rock, Metal Hammer, and Prog - went into administration in 2016 but Future repurchased some Team Rock assets in 2017.
