7digital Group — A good start to the year

7digital Group — A good start to the year

7digital’s recent trading update confirmed good progress. H117 revenues increased 13%, with a strong performance from high-margin licence and creative sales. Momentum in monthly recurring revenues and new contract wins, as well as the full impact of the 24-7 acquisition put the group on track for an even stronger second half and add to our confidence in the deliverability of targeted EBITDA profitability in 2018. Given the progress being made, the 3.0x FY18 EBITDA rating looks extremely attractive.

Analyst avatar placeholder

Written by

7digital Group

A good start to the year

Trading update

Media

16 August 2017

Price

6.55p

Market cap

£10m

Net cash (£m) at 30 June 2017

1.3

Shares in issue

183.0m

Free float

84%

Code

7DIG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.2

5.8

(5.9)

Rel (local)

11.8

6.6

(12.3)

52-week high/low

9.2p

5.3p

Business description

7digital Group provides an end-to-end, white-label digital music platform and access to global music rights that enable its clients, which include businesses in the radio, electronics, social media and telecoms industries around the world, to offer music streaming and download services to their own customers. Its global customer base includes musical.ly, Onkyo, Panasonic, MediaMarktSaturn, Cdiscount, Electric Jukebox, eMusic and i.am +.

Next events

Interim results

September 2017

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Fiona Orford-Williams

+44 (0)20 3077 5739

7digital Group is a research client of Edison Investment Research Limited

7digital’s recent trading update confirmed good progress. H117 revenues increased 13%, with a strong performance from high-margin licence and creative sales. Momentum in monthly recurring revenues and new contract wins, as well as the full impact of the 24-7 acquisition put the group on track for an even stronger second half and add to our confidence in the deliverability of targeted EBITDA profitability in 2018. Given the progress being made, the 3.0x FY18 EBITDA rating looks extremely attractive.

Year end

Revenue (£m)

EBITDA (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/ EBITDA (x)

P/E
(x)

12/15

10.4

(2.1)

(7.6)

(7.1)

0.0

N/A

N/A

12/16

11.9

(3.5)

(4.7)

(4.1)

0.0

N/A

N/A

12/17e

19.1

(1.7)

(2.9)

(1.8)

0.0

N/A

N/A

12/18e

24.9

3.0

2.1

1.2

0.0

3.0

5.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H1 trading update: Pick up in recurring revenues

H1 revenues, which include a month of the 24-7 acquisition and some currency benefit, increased 13% to £5.93m. High-margin licence revenues increased by 25% (c £3.8m) and monthly recurring revenues (including Juke!) increased by 27%. Creative revenues, which are also fairly high margin, were also “particularly strong”.

Contract wins: Momentum across range of segments

Contracts with a lifetime value of c £5m were signed in H1, including with DTS (automotive), HDtracks (the world’s first full MQA streamed music service) and the relaunch of TriPlay’s eMusic service in the US. Since the period end, 7digital has also announced new contracts with Global Eagle Entertainment (inflight entertainment content to the airline industry), Deedo SAS for a new music streaming service across 27 markets in Africa and Asia and US group Fan Label. These contracts will start to contribute to revenues in H217 and along with the first full half contribution from the consolidation of 24-7 (which is expected to add £5m of revenues in H217 and £8m in FY18) should support a very strong second half performance in line with our forecasts and management’s expectations.

Valuation: Progress warrants re-rating

We look forward to more detail at the interims in September, but on the face of it, 7digital has had a good start to the year both financially and in terms of new client wins across a range of segments, which along with the successful integration of 24-7 underpin our forecast 61% growth in revenues this year. While work remains to be done to deliver forecasts, the growth in MRR is encouraging, reflecting in part the benefit of the acquisition, improving earnings visibility and adding to our confidence in the achievability of EBITDA profitability next year. Given the progress being made, the FY18 EV/EBITDA rating of 3.0x, a fraction of the peer set, is looking increasingly out of sync. As the group moves towards targeted EBITDA profitability in FY18 we expect to see a significant re-rating of the shares, which we believe are worth at least 14p. Please refer to our recent initiation report for more information.

Exhibit 1: Financial summary

£000s

2014

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

10,212

10,392

11,899

19,110

24,856

27,587

Cost of Sales

(4,882)

(3,308)

(3,451)

(4,261)

(4,853)

(5,100)

Gross Profit

5,330

7,084

8,448

14,849

20,003

22,487

EBITDA

 

 

(3,108)

(2,102)

(3,528)

(1,747)

2,965

4,646

Normalised operating profit

 

 

(3,775)

(2,862)

(4,684)

(2,875)

2,145

3,762

Amortisation of acquired intangibles

0

0

(321)

(552)

(552)

0

Exceptionals

(388)

(128)

(464)

(840)

(1,100)

0

Share-based payments

(340)

(137)

4

0

0

0

Reported operating profit

(4,503)

(3,127)

(5,465)

(4,267)

493

3,762

Net Interest

3

11

(13)

0

(15)

0

Joint ventures & associates (post tax)

0

0

0

0

0

0

Exceptionals

1,888

(4,767)

0

0

0

0

Profit Before Tax (norm)

 

 

(1,884)

(7,618)

(4,697)

(2,875)

2,130

3,762

Profit Before Tax (reported)

 

 

(2,612)

(7,883)

(5,478)

(4,267)

478

3,762

Reported tax

(17)

(3)

(12)

0

0

(376)

Profit After Tax (norm)

(1,901)

(7,621)

(4,709)

(2,875)

2,130

3,386

Profit After Tax (reported)

(2,629)

(7,886)

(5,490)

(4,267)

478

3,386

Minority interests

0

0

0

0

0

0

Discontinued operations

3,004

0

0

0

0

0

Net income (normalised)

(1,901)

(7,621)

(4,709)

(2,875)

2,130

3,386

Net income (reported)

375

(7,886)

(5,490)

(4,267)

478

3,386

Basic average number of shares outstanding (m)

87

108

114

160

183

183

EPS - basic normalised (p)

 

 

(2.2)

(7.1)

(4.1)

(1.8)

1.2

1.9

EPS - diluted normalised (p)

 

 

(2.2)

(7.1)

(4.1)

(1.8)

1.2

1.9

EPS - basic reported (p)

 

 

0.4

(7.3)

(4.8)

(2.7)

0.3

1.9

Dividend (p)

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

1.8

14.5

60.6

30.1

11.0

Gross Margin (%)

52.2

68.2

71.0

77.7

80.5

81.5

EBITDA Margin (%)

N/A

N/A

N/A

N/A

11.9

16.8

Normalised Operating Margin

N/A

N/A

N/A

N/A

8.6

13.6

BALANCE SHEET

Fixed Assets

 

 

7,661

1,121

2,778

3,508

2,836

2,673

Intangible Assets

345

417

2,303

3,013

2,541

2,548

Tangible Assets

691

704

475

495

295

125

Investments & other

6,625

0

0

0

0

0

Current Assets

 

 

8,451

6,220

4,590

5,327

6,306

8,358

Stocks

44

62

177

177

177

177

Debtors

3,095

4,502

3,575

4,712

6,129

6,802

Cash & cash equivalents

5,312

1,656

838

438

0

1,378

Other

0

0

0

0

0

0

Current Liabilities

 

 

(4,984)

(3,975)

(7,193)

(8,652)

(8,666)

(7,354)

Creditors

(4,796)

(3,804)

(6,731)

(8,190)

(7,736)

(6,892)

Tax and social security

0

0

0

0

0

0

Short term borrowings

0

0

0

0

(468)

0

Other

(188)

(171)

(462)

(462)

(462)

(462)

Long Term Liabilities

 

 

0

0

(1,746)

(1,561)

(1,376)

(1,191)

Long term borrowings

0

0

(1,519)

(1,334)

(1,149)

(964)

Other long term liabilities

0

0

(227)

(227)

(227)

(227)

Net Assets

 

 

11,128

3,366

(1,571)

(1,378)

(900)

2,486

Minority interests

0

0

0

0

0

0

Shareholders' equity

 

 

11,128

3,366

(1,571)

(1,378)

(900)

2,486

CASH FLOW

Op Cash Flow before WC and tax

(3,108)

(2,102)

(3,528)

(1,747)

2,965

4,646

Working capital

(2,788)

(2,439)

4,098

322

(1,871)

(1,518)

Exceptional & other

(391)

(150)

(1,024)

(840)

(1,100)

0

Tax

(17)

(3)

(12)

0

0

(376)

Net operating cash flow

 

 

(6,304)

(4,694)

(466)

(2,265)

(6)

2,751

Capex

(345)

(848)

(447)

(800)

(700)

(720)

Acquisitions/disposals

3,718

1,828

108

0

0

0

Net interest

2

11

(13)

0

(15)

0

Equity financing

6,952

0

0

2,850

0

0

Dividends

0

0

0

0

0

0

Other

(1)

0

0

0

0

0

Net Cash Flow

4,022

(3,703)

(818)

(215)

(721)

2,031

Opening net debt/(cash)

 

 

(1,290)

(5,312)

(1,656)

681

896

1,617

FX

0

48

0

0

0

0

Other non-cash movements

0

0

(1,519)

0

0

0

Closing net debt/(cash)

 

 

(5,312)

(1,656)

681

896

1,617

(414)

Source: 7digital Group accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 7digital Group 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 2017. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 7digital Group 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 2017. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Industrials

Marshall Motor Holding — Strong H1 in a softening market

As indicated in the pre close trading statement, Marshall Motor Holdings (MMH) made good progress in H117, outperforming a weaker UK new car retail market. While uncertainty remains over the direction of end market demand, management’s growth strategy is facilitated by the strengthened balance sheet. Our forecasts are unchanged and assume ongoing market pressure in the second half of the year, with the rating discount to its peers likely to unwind further on any signs of market resilience during H2.

Continue Reading

Subscribe to Edison

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

Sign up for free