DISCLOSURES: I hold, a large (for me) long position in FFI, having purchased recently at prices ranging from 30.3p to 34.3p. I am therefore talking my own book, though, I believe, backed by primary research (e.g. speaking to an industry veteran). Fact check with the company complete.

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett

Link to 2018 Annual Report: http://www.filmfinances.com/ff...

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The Shortcut 

For a stock with a clear moat, industry leading position, and long heritage, FFI appears critically undervalued. Industry woes in 2017, combined with growing pains as the company acquires leading positions in adjacent niches set back management guidance for the current year (FY19) at the half year stage. The result, is that FFI is trading at an over 75% discount to its 2017 IPO price, not helped by poor liquidity. But looking beyond this, trading at just 5x earnings with a solid balance sheet, I firmly believe on a 6 to 12 month view, the stock offers substantial upside. My price objective is 65p, equal to 10 times FY19 ‘guide low’ earnings. Longer term, successful execution could drive a return to a mid-teens PE valuation, on FY20, implying a price objective closer to 120p, though this outcome should be somewhat discounted until execution improves.

What is FFIs heritage?
Film Finances is a business that is building out a full-service offering for the film industry. The company has been around since 1950 after the upheaval of the British film industry, with its heritage in the UK, though following the rest of the industry over to California as the US became the global film industry’s own HQ. The company’s roots until a couple of years ago were solely in the business of ‘completion contracts’, where it remains the market leader, estimated at 80% share, having been involved in over 5,500 film, TV and streaming productions. Excluding significant growth in streaming (which FFI is increasingly servicing), the film industry is anticipated to grow from $38bn in 2016, to $50bn in 2020.

The business is relatively heavily relationships driven, which is a key barrier to entry. Alongside having a multitude of experienced staff working at FFI for well over a decade, the company has a wide-ranging set of relationships with streaming…

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