Buy into Time Out’s market vision

The answer could be Time Out (TMO). The media and entertainment business started life in 1968 when founder Tony Elliott produced his first London culture magazine and has expanded into e-commerce, live events, books, digital publishing and, most recently, food and drinks markets. The original media business is still going strong – in 2017 it reported a 12 per cent increase in underlying revenue thanks largely to the diversity in its portfolio – but it’s the potential for the roll out of trendy markets, Time Out Market, which has us excited.

Time Out’s first branded market in Lisbon welcomed 2m people in 2014 and within just three years has become the city’s top tourist attraction with an annual footfall of 3.6m. The concept is simple: a venue for world class restaurants, street food, bars, live music, shops and arts – all activities that are in high demand from today's consumers.

By October 2018, the group will have its second and third markets up and running in Miami and New York and a further four locations have already been commissioned, ahead of the schedule management set out when the shares were floated in 2016. Thus, broker Liberum expects revenue in the markets business to rocket to £41m by 2020, from £6m last year. The group has also been approached by real estate developers to open and manage new sites in existing retail space. In theory, the developers would absorb the cost of development and Time Out would take a cut of the profits.

It looks a hugely profitable business model and the Lisbon market started generating gross cash profits (Ebitda) within six months of opening. The same is expected of New York and Miami, which should help the group make its first Ebitda profit by 2019.

But a note of caution. Accelerating the development of the market business comes at a cost and management has decided to take out a £20m debt facility from the group's majority shareholder, Oakley Capital, to fund the expansion. The snag is that the loan comes with a 10 to 15 per cent interest rate and must be repaid (or refinanced) by October 2019. The borrowing costs have prompted City analysts to trim their forecasts, and net profits and earnings are therefore not now expected until 2020. But Liberum thinks borrowing the money was the right decision. It allows the group to accelerate development of its markets while the demand is high.