Thoughts on ETO

8th Dec '15 by DJLJ23

32 comments 19098 reads

Clearly the market has taken a serious dislike to the annoucement that it was raising debt. But i have to admit that i'm struggling to understand the reasons behind such an extreme reaction.
They claim the portfolio has been valued at $1Billion which at the current price ($1000M/333M)
is about $3 per share.
so if that was a realistic valuation, the shares are significantly under valued (eod 8 dec 15) and one would have thought it would now be in play as a take over target.

The interims stated "The Group continues to explore debt financing options to support its growth strategy" so it was not news that it was planning to do something about its debt.

Overall pretty confused, if anybody can help to clarify, it would be appreciated.

thanks David

Should remember don't catch a falling knife. i did s so currently have a small holding in ETO.

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PJ0077

17th Aug '16

Always fascinating to watch a bid battle involving companies that I am not invested in... the 'Winners Curse' often raises it's head!

ETO clearly has a troubled history & maybe for this reason it has been 'aggressive' with its accounting.. it's profits are clearly overstated(*).

Therefore there is maybe a risk that the 'winning' bidder will overpay.

For ITV shareholders, I hope you don't win !

(*) check the Montier 'Cheat' score.

janebolacha

18th Aug '16

Carey, you might be interested in this article. It concludes:

"Tot it all up, subtract debt, and a diced-up Entertainment One’s market capitalisation increases to 1.6 billion pounds. That’s more than 50 percent above its closing price on Aug. 15. Activist shareholder Livermore Partners has taken aim at Entertainment One’s management for being overly zealous with acquisitions and taking on debt. Getting out the carving knife would be one way for Entertainment One to prove it can still bring home the bacon."

http://www.breakingviews.com/considered-view/peppa-pig-owner-could-fetch-more-diced-up/

If the article doesn't come up, you could simply sign up for a free trial subscription and access it.

Good luck with your investing,
Jane.

Carey Blunt

Thanks Jane, i'll check it out and then might consider averaging down some more as I'm sure something will happen and I believe most scenarios will cause some positive effect on the SP.

Rusty2

25th Aug '16

ITV says it withdraws proposal as its view of Entertainment One's value is different to that of the co's board.

So is it still worth holding or time to sell up?

They must have caught sight of the ETO accounting.. the company has a troubled history & maybe for this reason it has been 'aggressive' with its accounting.. it's profits are clearly overstated.. check-out the Montier 'C' Score!

I was sceptical about ITV (LON:ITV), see my message no. 12 above.
Imo, there would and will be better owners (that is, better than ITV, also actually better than ETO itself) for the different assets ETO has to offer.

Ramridge

Hi Jane - here is an interesting snippet from today's Daily Telegraph.

While eOne required a higher bid to open formal talks, it is understood that ITV faced tough questions from its own shareholders over the value of a takeover. While it is building a production business, most of eOne’s revenues are drawn from low-margin cinema distribution.

Is there any validity in this statement?

BTW, I have decided to hold on to my shares precisely because of the reason you have stated. I see more serious potential buyers from overseas making a bid.

Regards, Ram

Hi Ram,

ETO is a mongrel, as I said in #12 above. It is crying out to be broken up and properly but separately focused. I'm expecting it will be - but perhaps just not by ITV. That said, looking only at revenues is not the way to value or appreciate ETO, imo. Almost one-third of EBITDA comes from Peppa Pig and that is the area growing fast and the asset that interests potential bidders, imo.

As I said before, ITV itself is perhaps a target at these prices so their BOD cannnot afford to make any injudicious buys which would increase its vulnerability.

Best wishes,
Jane.

This is just one example of the potential in what ETO are sitting on.

http://www.animationxpress.com/index.php/latest-news/entertainment-ones-peppa-pig-grows-significantly-in-all-platforms-in-china

It's just about the same story in the US and everywhere that Peppa Pig is launched..

However, are the management of ETO capable of realising the value in this?

That's the big doubt in everyone's mind, I think.

But it is also that which provides the buyout or takeover opportunity and attraction.

(PS: And remember that the actual short films represent only 5% of the revenues from Peppa, the rest being merchandise and licensing of all kinds. Is something on this scale within the capability of the present ETO management? I have my doubts, tbh.)

(PPS: Sorry about the bold type, it seems to be a Stockopedia glitch!)

Impressive. Peppa Pig is growing in popularity in both the major markets, US and China.
If eOne cannot monetise this, then they should let others do it.
Thanks for posting this article.

gus 1065

Sorry - problem with Stockopedia. See post below.

Every time I nibble at this stock it bites me back, bought some more yesterday only to see the sp drop today. I do hope that my patience with this stock pays off eventually. For some reason I have the reverse Midas touch with it.

Hi Jane.

I think you're spot on with both comments. Entertainment One (LON:ETO) is crying out for a mercy killing. Someone needs to come along and monetise Peppa and the current management are not up to the job preferring the "vanity" of the other media outlets rather than the obvious merchandising opportunities here. Someone - probably US private equity with valuable and cheap to borrow Dollars to spend - will hopefully come along and put them out of their misery.

Likewise, I don't think ITV (LON:ITV) were ever likely to be able to pay the required asking price without creating a ruckus with their own shareholders or for that matter offer their own beaten up shares up as part of the bid. Probably good for their shareholders that they didn't try too hard.

I don't think ITV pulling out today really changed my view of the position, other than to allow an opportunistic top up of my (albeit small) Entertainment One (LON:ETO) holding via a limit order at 206p. Entertainment One (LON:ETO) is now in play and vulnerable. More activity to come in due course IMO.

Best,

Gus.

4th Sep '16

Ram, Gus, Carey..........

Here's an illustration of the attraction for the big boys in the media business of animation assets of the kind owned by Entertainment One (LON:ETO), i.e., Peppa Pig, as well as of the prices good properties fetch and the speed at which they are snapped up:

http://www.philly.com/philly/business/20160904_HED_WITH_ALL_CAPS______.html

16th Sep '16

Rather intriguing that today's volume traded, 6.65m shares, is almost five times the average daily volume of the last twelve months.

http://markets.ft.com/data/equities/tearsheet/summ...

Any yet the share price barely moved.

Conclusion: Institution A sold 3million shares to Institution B?

Over 4.5m were bought at 16.35, so does this mean the marketmakers have 4.5m shares to sell?

The selling price had risen to about 207p in the morning, then had dipped back to 202p.
That last transaction was then at a substantially higher price. I don't see the MM's
buying in that large volume on post-close bargain matching and at that much higher price.
A volume equivalent to about four days normal volume and at a much higher price?
Why would the MM's do that? That's why the transaction (1% of the issued share capital) seems rather strange.

According to the LSE site, the 4.35pm transaction was an "Uncrossing Trade" for 4,508,741 shares at 205.1p (previous trade at 201.7p) with a notional value of £9.25m. This represented about 70% of today's total 6.65m of shares traded which in turn is about 1.5% of the total Entertainment One (LON:ETO) stock in issue.

LSE defines a UT as:- "Uncrossing Trade. This is used for the single uncrossing trade, detailing the total executed volume and uncrossing price as a result of a SETS auction." My (limited) understanding is that this effectively matches the available bids and offers on the SETs books at close at a market clearing price of approximately 4p above the preceding trade, suggesting that it was on the offer rather than bid side (i.e. someone keen to buy rather than market makers hoovering up loose stock on the cheap at close of business). Likewise, also seems quite a large amount of cash for the MM's to run as an open position over the weekend suggesting it could either be a large punt (or perhaps wishful thinking the opening position for a bidder).

Let's see if there is any scuttlebutt in the weekend press.

Best,

Gus.

19th Sep '16

Sudden jump again today in the share price with very large transaction reported late in the trading day.
It does seem as if systematic accumulation is going on.

Thoughts on ETO

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DJLJ23

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