Zoo Digital (ZOO) expanded its top line at the half-year mark despite third-party issues beyond its control. Subtitling revenue growth was constricted as orders from a major over-the-top (OTT) customer were disrupted due to changes in its business relationship with localisation service providers, resulting in a temporary halt in the supply chain.
However, management notes that projects with the operator are "now at a higher level than prior to the disruption". Chief executive Stuart Green admitted that this could happen with other OTT players, but the subtitling business is back on track, and with dubbing revenues having more than doubled over the period, the group remains in expansionary mode.
Indeed, it has doubled its network of freelance workers to 5,400 since the 2017 half-year, in addition to launching a new facility in Dubai in anticipation of an increase in the number of OTT providers, which will require localisation partners. All this comes at a price, evidenced by a 20 per cent rise in operating expenses to $5.3m (£4.1m) and a $1.5m net cash outflow. Given a period-end cash balance of $0.9m, it's conceivable the group could tap its unused credit facilities.
Broker FinnCap forecasts adjusted pre-tax profits of $1.8m and EPS of 2.1¢ for the year ending March 2019 (up from $0.5m and 0.9¢ in FY2018).
|ZOO DIGITAL (ZOO)|
|ORD PRICE:||122p||MARKET VALUE:||£90.8m|
|TOUCH:||120-124p||12-MONTH HIGH:||175p||LOW: 40p|
|DIVIDEND YIELD:||NIL||PE RATIO:||NA|
|NET ASSET VALUE:||3.5¢*||NET DEBT:||126%|
|Half-year to 30 Sep||Turnover ($m)||Pre-tax profit ($m)||Earnings per share (¢)||Dividend per share (¢)|
|*Includes intangible assets of $6.5m, or 8.8¢ a share.|
Zoo has cleared the temporary hurdle with its OTT client and enjoyed outstanding revenue growth from its dubbing business. But the shares trade bang in line with a range of historical adjusted earnings metrics relative to peers, so we remain neutral. Hold.
Last IC View: Hold, 94p, 2 Jul 2018