Thursday 19 September 2019

Sharewatch: Peppa Pig in Asia can be a mood changer for eONE

Peppa Pig
Peppa Pig

John Lynch

It is generally known there is a fondness for pork in Chinese cooking but the little piggy making big inroads in the world's most populated country at the moment is inedible but maybe also irresistible. It is 'Peppa Pig', the animated television character which has been taken up by China Central Television and has had more than 45 billion views on Chinese video on-demand platforms, last time we looked.

If that wasn't promising enough, it is also being rolled out in Japan, a broadcasting process that will be followed up with the inevitable ocean of consumer merchandise to capitalise on its popularity.

Anyone with familiarity with the modern life and times of the under-fives won't need reminding of the 'Peppa Pig' phenomenon. But the fact the little pink one with the Home Counties accent is spectacularly invading the Far East should be no surprise given the ambition of Peppa's owners, the Canadian-controlled group Entertainment One (eONE).

eONE is a much-diversified operation spanning film, television, music production sales, merchandising and licensing.

The group is one of the largest independent film distributors, with a library of 35,000 film and TV titles including 'Lord of the Rings', the 'Twilight' series and, of course, 'Peppa Pig'. It has only had its 70pc stake in 'Peppa Pig' since 2015, when it bought into the British animator Astley Baker Davies, but the group has been an assiduous acquirer of entertainment assets since the turn of the millennium and now boasts a market value of ¤1.4bn.

The recent speculation over 21st Century Fox spotlights the amazingly high value of TV and film production. Proof of the trend is clear from the vast amount of consolidation evident in American media.

In recent months, a battery of US companies like Verizon, Disney, Sony and Comcast have all eyed up the Murdoch-controlled giant.

It is also clear that consolidation to date has breath-taking valuations like AT&T's interest in Time Warner and the Disney/21st Century proposed merger, and shows just how much decent film and television assets fetch - eONE's are estimated at ¤1.92bn.

Indeed, the company has made itself something of a takeover target with the huge amounts of money it has put into the acquisition of original content in the last few years. It has had a few lustful eyes thrown in its general direction in the recent past. The UK television giant ITV was prepared to pay over ¤1.1bn for Peppa and her many friends about two years ago as it sought to lessen its over-dependence on advertising. While the two could not agree on a price, there were probably other good reasons why the plan collapsed.

One was that eONE was in receipt of valuable tax credits for its investments in Canada which would not be available if the recipient company was not domiciled in Canada.

eONE's share price has been a rather indifferent performer. Following the shares hitting a three-year high at the end of last year, they have fallen back 18pc to its present level of ¤3.16.

This is a reflection of the serious drop in profit shown in the latest results. However, the group expects cost saving of ¤11m this year as it shifts from physical to digital distribution. eONE has a very steep multiple of 14 but pays a modest dividend.

While revenues topped ¤1.1bn for the first time, profit before tax plunged 20pc to ¤28m. Film revenue contributed ¤671m with an increase of 7pc on the year. Its main operations are the US, UK, Canada, Australia and New Zealand. In contrast TV revenue (including music) jumped 80pc to ¤510m.

The shares are speculative and those invested are hoping the wave of acquisitions look in eONE's direction. This viewpoint is likely to keep supporting the share price. The company up to recently remained fairly chipper, particularly about the inroads that its two animation favourites are making in Asia.

In good news for the under-fives, the company has confirmed a new series of 117 episodes. However, last week the Chinese authorities banned Peppa and the pals from being aired, apparently for promoting "gangster" attitudes.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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