Future — Update 12 October 2016

Future — Update 12 October 2016

Future

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Future

Imagining the Future

Year-end trading update

Media

12 October 2016

Price

8.75p

Market cap

£32m

Net cash (£m) at end March 2016

0.6

Shares in issue

368.8m

Free float

92%

Code

FUTR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.3

(1.6)

(15.7)

Rel (local)

(1.4)

(7.5)

(22.9)

52-week high/low

11.5p

7.9p

Business description

Future plc is an international media group and leading digital publisher. It operates two separately managed brand-led divisions: Media and Magazine.

Next events

Full year results

w/c 21 November 2016

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

Future is a research client of Edison Investment Research Limited

Future’s year-end trading update outlines the good progress made in driving the new revenue streams, leveraging the strong portfolio of global brands. FY16 results are in line with management expectations, with cash flow better than anticipated, resulting in a small net cash position at the year end. Future has now been informed that the CMA has no objection to it completing the acquisition of Imagine Publishing, subject to the ring-fencing of one title out of the 22 in the portfolio. Our FY17 pro forma estimates now assume the acquisition is included as of 1 November 2016. The shares remain at a substantial discount, which should close as the benefits of the deal come through.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/14

66.0

(11.1)

(3.2)

0.0

N/A

N/A

09/15

59.8

0.2

0.2

0.0

43.8

N/A

09/16e

57.6

0.8

0.3

0.0

29.2

N/A

09/17e**

68.2

4.6

0.7

0.0

12.5

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **FY17 pro forma assumes deal completes 1 November 2016.

Progress on margin and revenue diversification

The changes implemented by management over the last couple of years are now starting to be reflected in the numbers coming through, with margins scaling up and a more robust business model. New income streams, such as those generated from e-commerce and events will allow the group to drive returns on the investment from the brand portfolio. The reorganisation of the magazine division is facilitating more efficient operation, which will be leveraged further with the additional titles from the Imagine portfolio. More detail will be given with the full year results towards the end of November. Cash flow in H216 has evidently been better than we had modelled. Our forecast was for a year-end net debt position of £2.7m, whereas the company’s update refers to a small net cash balance. Our model will be fully updated on the full year results.

More to come from Imagine

When we initiated coverage in August (see note), we included the Imagine acquisition pro forma for the whole of FY17, to demonstrate the scale of the transformation and particularly the uplift in earnings per share. However, we did not then include, and have not now, any of the benefits of scale that should come from centralisation of overhead, leaner management or buying synergies.

Valuation: Remains on discount

Future’s market valuation (pro forma) is at a discount against a broad set of peers of around 20% on EV/sales. On EV/EBITDA, the shares are rated around par with the more print-oriented stocks in the sector, but on a discount to those with larger digital assets. Our DCF analysis indicates a price around 13p on 10% WACC and 2% terminal growth rate assumptions, based on conservative pro forma estimates. As the full benefits of the acquisition come through, this valuation gap should close.

Financial summary

Exhibit 1: Financial summary

£'m

2013

2014

2015

2016e

2017pf

30 September

IFRS

IFRS

IFRS

IFRS

IRFS

INCOME STATEMENT

Revenue

 

 

82.6

66.0

59.8

57.6

68.2

Cost of Sales

(58.5)

(50.6)

(40.6)

(36.7)

(44.4)

Gross Profit

24.1

15.4

19.2

21.0

23.8

EBITDA

 

 

(0.6)

(7.0)

3.6

4.6

9.0

Normalised operating profit

 

 

(3.4)

(10.3)

0.8

1.7

6.1

Amortisation of acquired intangibles

(2.0)

(2.3)

(2.3)

(2.3)

(3.7)

Exceptionals

2.6

(24.3)

(2.5)

(3.0)

(2.0)

Share-based payments

(0.3)

(0.1)

0.0

0.0

0.0

Reported operating profit

(3.1)

(37.0)

(4.0)

(3.6)

0.4

Net Interest

(1.4)

(0.8)

(0.6)

(0.9)

(1.5)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Profit before tax (norm)

 

 

(4.8)

(11.1)

0.2

0.8

4.6

Profit before tax (reported)

 

 

(4.2)

(35.4)

(2.3)

(2.2)

(1.1)

Reported tax

(0.1)

0.5

0.3

0.4

0.2

Profit after tax (norm)

(4.9)

(10.6)

0.5

1.2

3.6

Profit after tax (reported)

(4.3)

(34.9)

(2.0)

(1.8)

(0.9)

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(4.9)

(10.6)

0.6

1.2

3.6

Net income (reported)

(4.3)

(34.9)

(2.0)

(1.8)

(0.9)

 

Basic average number of shares outstanding (m)

332

332

333

362

536

EPS – basic normalised (p)

 

 

(1.5)

(3.2)

0.2

0.3

0.7

EPS – diluted normalised (p)

 

 

(1.4)

(3.2)

0.2

0.3

0.7

EPS – basic reported (p)

 

 

(1.3)

(10.5)

(0.6)

(0.5)

(0.2)

Dividend (p)

0.0

0.0

0.0

0.0

0.0

 

Revenue growth (%)

N/A

(20.1)

(9.4)

(3.6)

0.2

Gross margin (%)

29.2

23.3

32.1

36.4

34.9

EBITDA margin (%)

(0.7)

(10.6)

6.0

8.0

13.1

Normalised operating margin (%)

(4.1)

(15.6)

1.3

2.9

8.9

 

BALANCE SHEET

 

Fixed assets

 

 

92.7

45.9

44.9

46.1

59.4

Intangible assets

89.8

44.4

43.8

45.0

57.9

Tangible assets

2.5

1.0

0.6

0.6

1.0

Investments & other

0.4

0.5

0.5

0.5

0.5

Current assets

 

 

28.3

22.9

19.5

18.5

21.3

Stocks

1.9

0.6

0.5

0.3

0.4

Debtors

21.4

12.8

15.3

13.8

17.4

Cash & cash equivalents

4.6

7.5

2.5

3.2

2.3

Other

0.4

2.0

1.2

1.2

1.2

Current liabilities

 

 

(44.2)

(27.1)

(25.9)

(26.6)

(32.3)

Creditors

(31.6)

(25.9)

(20.7)

(19.9)

(23.6)

Tax and social security

(0.9)

(1.2)

(0.9)

(0.9)

(0.9)

Short-term borrowings

(11.5)

0.0

(4.3)

(5.8)

(7.8)

Other

(0.2)

0.0

0.0

0.0

0.0

Long-term liabilities

 

 

(9.4)

(9.1)

(7.1)

(7.2)

(10.6)

Long-term borrowings

0.0

0.0

0.0

(0.1)

(3.5)

Other long-term liabilities

(9.4)

(9.1)

(7.1)

(7.1)

(7.1)

Net assets

 

 

67.4

32.6

31.4

30.7

37.8

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

67.4

32.6

31.4

30.7

37.8

 

CASH FLOW

 

Operating cash flow before WC and tax

0.6

(31.6)

0.8

4.6

7.0

Working capital

(0.7)

7.7

(8.0)

(1.0)

(1.3)

Exceptional & other

(2.4)

22.4

(0.4)

(4.1)

(2.5)

Tax

1.5

(1.5)

(0.5)

(0.6)

(1.2)

Net operating cash flow

 

 

(1.0)

(3.0)

(8.1)

(1.0)

3.1

Capex

(2.9)

(2.6)

(2.0)

(2.0)

(2.0)

Acquisitions/disposals

9.2

21.3

1.3

0.0

(20.0)

Net interest

(1.4)

(0.8)

(0.6)

(0.9)

(1.5)

Equity financing

0.0

0.0

0.0

3.1

14.2

Dividends

0.0

(0.7)

0.0

0.0

0.0

Other

(0.1)

0.0

0.0

0.0

1.1

Net cash flow

3.8

14.2

(9.4)

(0.8)

(5.1)

Opening net debt/(cash)

 

 

10.6

6.9

(7.5)

1.8

2.7

FX

(0.1)

0.2

0.1

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

(0.1)

0.0

Closing net debt/(cash)

 

 

6.9

(7.5)

1.8

2.7

7.8

Source: Company accounts, Edison Investment Research. Note: FY17e figures assume deal completes as of 1 November 2016.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Future and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Future and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Consumer

Greggs — Update 12 October 2016

Greggs

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free