Future — All systems go

Future — All systems go

Future has delivered a very good set of FY18 numbers – better than the upgrades put in place with the September update. This came through both the acquisitions and the organic growth as the group leverages its platform, with Media showing organic growth of 40%. There is plenty still to go for and we have again raised our FY19 expectations and published indicative FY20e forecasts. The group now has scale in the important US market, accounting for nearly half of group revenues on a pro-forma basis. In our view, the valuation does not reflect the premium growth or expanding margins.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Future

All systems go

Full year figures

Media

23 November 2018

Price

483p

Market cap

£393m

Net debt (£m) end September 2018

17.8

Shares in issue

81.4m

Free float

99.7%

Code

FUTR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.0

15.0

61.5

Rel (local)

10.4

25.6

72.6

52-week high/low

516.0p

297.7p

Business description

Future is a global platform business for specialist media with diversified revenue streams.

Next events

AGM

February 2019

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5740

Future is a research client of Edison Investment Research Limited

Future has delivered a very good set of FY18 numbers – better than the upgrades put in place with the September update. This came through both the acquisitions and the organic growth as the group leverages its platform, with Media showing organic growth of 40%. There is plenty still to go for and we have again raised our FY19 expectations and published indicative FY20e forecasts. The group now has scale in the important US market, accounting for nearly half of group revenues on a pro-forma basis. In our view, the valuation does not reflect the premium growth or expanding margins.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV/EBITDA (x)

Yield
(%)

09/17

84.4

8.3

17.5

0.0

27.6

37.1

0.0

09/18

124.6

17.4

24.0

0.5

20.1

19.7

0.1

09/19e

176.0

29.3

26.9

2.0

17.9

12.1

0.4

09/20e

179.0

32.4

30.4

3.0

15.9

11.5

0.6

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

Strong organic growth supplements acquisitions

Corporate activity played a significant role in FY18, with NewBay Media (April, £9.9m) and the larger Purch consumer deal (September, £99.1m), as well as the purchase of titles from Haymarket (£10.7m) and Next Media in Australia. The combined cost represented 1.2x the combined revenues. The first two have provided a major step up for Future in the US, with NewBay further broadening revenue streams in the B2B market. Management has built a strong reputation for integrating acquired businesses on time and on budget. This pace of activity should not overshadow the organic progress. This was 40% in the Media division (total revenue up 88%), now over half of the group. UK organic growth was 6% (including most of Magazines), whereas the US posted organic progress of 28%. EBITDA margins also expanded as the mix moved further to Media, growing from 13.0% to 16.6% (adjusted basis). We model further growth in FY19e and FY20e with full years of the acquisitions, more high-margin eCommerce revenue and a leveraging of the tech platform.

Cash flowing

Cash conversion in FY18 was 96% and the group’s ongoing capital requirements are relatively modest. September’s rights issue ensured the balance sheet stayed robust and net debt at the year-end was £17.8m; gearing of 10% and 0.8x FY18 EBITDA. Our model indicates the group returning to near net cash by end FY19e, bar further corporate activity.

Valuation: Plenty still in the tank

At 483p, Future’s shares are trading at around par to our blended peer set on an EV/EBITDA basis for FY19e, despite the considerable premium in the growth and expanding EBITDA margin. Looking at a DCF on unchanged assumptions of a conservative 7% medium-term, top-line growth and with the EBITDA margin growing to 23% (reflecting the shift in mix more towards Media), we derive an indicative valuation of 607p, 24% ahead of the current market level.

Strong FY18 warrants further upgrades

We upgraded our estimates with the year-end trading update in September (see note) and firmed up our forecasts including the Purch acquisition. The published FY18 EBITDA is 4% ahead of our September forecast, but the interest charge and (notably) the tax rate were also below the levels we had anticipated, hence a larger revision of our EPS number.

Given the way the business is developing and the speed of the improvement in the US, particularly in eCommerce and digital advertising, we have again lifted our forecasts for FY19e as shown below, and initiated forecasts for FY20e, which may well prove conservative. The current trading and outlook statement indicates that FY19 has started strongly and that Home Interest has now established itself as a ‘material operating vertical’. The Purch integration is expecting to be largely completed by the start of Q2 in the new year.

Exhibit 1: Summary forecast changes

EPS

PBT

EBITDA

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2018

19.9

24.0

+21

15.5

17.4

+12

20.0

20.7

+4

2019e

24.8

26.9

+8

27.3

29.3

+7

31.8

33.8

+6

2020e

-

30.4

N/A

-

32.4

N/A

-

35.4

N/A

Source: Company accounts, Edison Investment Research

Media power

Exhibit 2: Media segment components’ growth

Source: Company accounts, Edison Investment Research

The growth in the underlying segments is shown above. Although this includes the benefit of acquisitions, we would anticipate there is more to come, particularly as average revenue per user rises in the US market. This would be both in the digital advertising yields and in the eCommerce revenues generated, with greater potential for expansion in the US.

In Magazines, the underlying revenue decline was 8%, broadly in line with what we had anticipated, with the acquisitions lifting the overall revenue to an increase of 20%. The US magazine portfolio has been rationalised to focus on the brands with the most potential traction.

Exhibit 3: Financial summary

£'m

2016

2017

2018

2019e

2020e

30 September

IFRS

IRFS

IRFS

IRFS

IRFS

INCOME STATEMENT

Revenue

 

 

59.0

84.4

124.6

176.0

179.0

Cost of Sales

(16.0)

(50.5)

(69.3)

(88.0)

(87.0)

Gross Profit

43.0

33.9

55.3

88.0

91.9

EBITDA

 

 

5.2

11.0

20.7

33.8

35.4

Operating Profit (before amort. and except.)

 

2.8

8.9

18.5

30.8

32.4

Amortisation on acquired intangibles

0.0

(2.3)

(5.7)

(14.8)

(14.8)

Exceptionals

(16.5)

(3.7)

(4.4)

(1.5)

(1.5)

Share-based payments

(0.5)

(2.1)

(3.1)

(4.0)

(4.0)

Reported operating profit

(14.2)

0.8

5.3

10.5

12.1

Net Interest

(0.5)

(0.6)

(1.1)

(1.5)

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

2.3

8.3

17.4

29.3

32.4

Profit Before Tax (reported)

 

 

(14.9)

0.2

4.2

9.0

12.1

Reported tax

0.5

1.4

(1.5)

(1.7)

0.0

Profit after tax (norm)

2.3

8.6

14.9

23.7

26.0

Profit after tax (reported)

(14.4)

1.6

2.7

7.3

12.1

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.2

0.0

0.0

0.0

0.0

Net income (normalised)

2.3

8.6

14.9

23.7

26.0

Net income (reported)

(14.2)

1.6

2.7

7.3

12.1

Average Number of Shares Outstanding (m)

32

45

56.9

82

83

EPS - basic normalised (p)

 

 

7.1

19.0

26.2

28.9

32.6

EPS - normalised, diluted (p)

 

 

6.9

17.5

24.0

26.9

30.4

EPS - basic reported (p)

 

 

(43.9)

3.5

5.1

8.8

13.7

Dividend per share (p)

0.0

0.0

0.5

2.0

3.0

Revenue growth (%)

(1.3)

43.1

47.6

41.3

1.7

Gross margin (%)

72.9

40.2

44.4

50.0

51.4

EBITDA margin (%)

8.8

13.0

16.6

19.2

19.8

Normalised operating margin (%)

4.7

10.5

14.8

17.5

18.1

BALANCE SHEET

Fixed assets

 

 

36.1

97.9

210.6

195.4

195.5

Intangible assets

33.2

92.3

203.4

188.1

189.3

Tangible assets

0.5

1.0

1.7

1.8

0.7

Investments & other

2.4

4.4

5.3

5.3

5.3

Current assets

 

 

15.8

24.5

44.1

65.0

85.3

Stocks

0.4

0.7

0.0

0.0

0.0

Debtors

12.4

13.6

37.6

44.1

44.9

Cash & cash equivalents

2.9

10.1

6.4

20.7

40.4

Other

0.1

0.1

0.1

0.1

0.1

Current liabilities

 

 

(25.1)

(36.4)

(58.0)

(57.7)

(58.7)

Creditors

(21.4)

(29.9)

(48.4)

(49.4)

(50.4)

Tax and social security

(1.4)

(3.2)

(1.1)

(1.1)

(1.1)

Short-term borrowings

(2.3)

(3.2)

(8.5)

(7.2)

(7.2)

Other

0.0

(0.1)

0.0

0.0

0.0

Long-term liabilities

 

 

(5.6)

(24.7)

(24.1)

(17.4)

(11.7)

Long-term borrowings

(0.1)

(16.9)

(15.7)

(12.3)

(8.9)

Other long-term liabilities

(5.5)

(7.8)

(8.4)

(5.1)

(2.8)

Net assets

 

 

21.2

61.3

172.6

185.3

210.5

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

21.2

61.3

172.6

185.3

210.5

CASH FLOW

Operating cash flow before WC and tax

5.2

11.0

20.7

33.8

35.4

Working capital

(2.1)

4.7

(1.4)

(5.6)

0.3

Exceptional & other

0.0

(3.7)

(4.9)

(1.5)

(1.5)

Tax

(0.7)

(1.4)

(4.6)

(5.0)

(5.0)

Net operating cash flow

 

 

2.4

10.6

9.8

21.7

29.1

Capex

(2.5)

(2.6)

(2.6)

(2.6)

(2.6)

Acquisitions/disposals

(0.3)

(31.8)

(119.6)

0.0

0.0

Net interest

(0.4)

(0.6)

(1.1)

(1.5)

(1.0)

Equity financing

3.1

21.0

102.3

0.0

0.0

Dividends

0.0

0.0

0.0

(1.0)

(2.5)

Other

(0.1)

0.2

2.7

0.0

0.0

Net cash flow

2.2

(3.2)

(8.5)

16.6

23.0

Opening net debt/(cash)

 

 

1.8

(0.5)

10.0

17.8

1.2

FX

0.1

0.0

0.7

0.0

0.0

Other non-cash movements

0.0

(7.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(0.5)

10.0

17.8

1.2

(21.9)

Source: Company accounts, Edison Investment Research

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295 Madison Avenue, 18th Floor

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This report has been commissioned by Future and prepared and issued by Edison, in consideration of a fee payable by Future. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

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Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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United States

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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 4, 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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Following our note on BTG’s interim results, the proposed £3.3bn all-cash acquisition by Boston Scientific was announced. Further, on 21 November, BTG and its partner Johnson & Johnson (J&J) failed to prevent the launch of generic competition to Zytiga (28% of BTG’s H1 revenue). We examine the potential impact of generic Zytiga on the transaction.

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