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Television Francaise 1 (TF1)
BUY, TARGET PRICE €9.7 (upside +10.2%)
MARKET DATA
Stock price (closing 8/3/13)
8.8€
Shares nb in M 210.3
Market value (M€) 1,850
Net Cash M €) -235.4
EV adjusted (M€) 1,615.1
ISIN FR0000054900
Market Eurolist Compartment A
Analysts P.Schang
analyses@nfiance.fr 01-53-05-92-87
2012 2013e 2014e 2015e
Revenues 2620.6 2542.5 2578.4 2615.0
%growth 0.0% -3.0% 1.4% 1.4%
EBIT 210.4 234.3 230.4 234.9
%margin 8.0% 9.2% 8.9% 9.0%
Net profit 136.0 143.4 142.2 144.8
%margin 5.2% 5.6% 5.5% 5.5%
2012 2013e 2014e 2015e
EV/Sales 0.59 0.61 0.50 0.44
EV/EBITDA 3.8 4.4 4.0 3.5
PE 11.3 12.4 12.5 12.3
Covered by NFinance since March 8, 2013
Calendar
May 7th 2013 : Q1 2013 results
Holdings
Bouygues 43.7%
Employees 7.2%
Free float France 12.6%
Free float – rest of world 36.5%
March 11, 2012
TF1 is an integrated media group engaged in broadcasting and
telecommunications services. The group’s core business is TF1, a leading
general freeview television channel in France. Other activities consist of:
operation of theme channels (including the Eurosport network), film and
advertising production, home shopping program, transactions with
audiovisual rights and publishing of music CDs and DVDs. At the end of
2012, TF1 entered into a strategic partnership with Discovery
Communications group.
LATEST PRESS RELEASE COMMENTARY
TF1 has released its 2012 annual results, reporting flat consolidated
revenues of €2.6 billion. The weak economic environment significantly
impacted TF1’s core channel advertising revenues, which fell by 6.7% year-
on-year to €1.4 billion. On the other hand, revenues from other activities
saw a solid performance, growing by 9.2% year-on-year to €1.2 billion,
mainly driven by increased advertising revenues for Eurosport International
and the DTT channels, and improved monetisation of online services.
Current operating profit was down by 8.8% year-on-year to €258 million,
mostly due to reduced profitability of TF1’s main channel. In 2012, the group
launched Phase II of its optimisation plan focused on cost-cutting measures.
The company expects to achieve €85 million in cost reductions by the end
of 2014, with €15 million already reached in 2012.
Management anticipates for 2013 a 3% drop in total revenues due to an
uncertain environment leading to low visibility.
ANALYSIS
TF1’s performance was in line with expectations. After the announcement
of the results, the stock price quickly declined (by nearly 12% as of March
5, 2012), most likely due to the weak outlook for 2013 noted by
management. It appears that currently the group is focused on controlling
costs and adapting the business model to the new media landscape. The
partnership with Discovery should also benefit the company. Given the
global economic crisis, we believe TF1 is still showing a satisfactory
performance, while implementing a sound operating strategy.
VALUATION
We initiate TF1 with a BUY rating and a target price at €9.7 per share (DCF
€8.3 WACC 11.8% terminal growth rate +1.0%, Peers €9.6, Historical ratios
€11.2), based on TF1’s market leadership, solid financial position and cost-
cutting measures. It is worth noting that our DCF employs conservative
estimates for revenues (remaining relatively flat after the expected decline
in 2013).
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SUMMARY ............................................................................................................................................................................... 3
GROUP PRESENTATION .......................................................................................................................................................... 4
GROUP HISTORY ..................................................................................................................................................................... 6
INVESTMENT TRIGGERS .......................................................................................................................................................... 7
Strategic alliance with Discovery Communications ............................................................................................................ 7
Market leader in France ...................................................................................................................................................... 7
Solid operating performance of the group’s theme channels and digital activities........................................................... 7
Healthy financial position ................................................................................................................................................... 8
INVESTMENT RISKS ................................................................................................................................................................. 9
Challenging environment for the broadcasting industry .................................................................................................... 9
Difficult advertising market ................................................................................................................................................ 9
Geographically concentrated revenues ............................................................................................................................ 10
VALUATION ........................................................................................................................................................................... 11
FINANCIAL OVERVIEW .......................................................................................................................................................... 13
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SUMMARY
TF1 is a France-based company primarily providing television broadcasting services. The
group manages France’s leading freeview general channel – TF1. It also operates theme
channels, including the Eurosport network. Besides television broadcasting, the group has
other activities, such as film and audiovisual production, trading of audiovisual rights,
production of commercials, publishing of music CDs and DVDs and movie distribution.
The global economic turmoil has had a large impact on the company’s operations,
especially due to the decline in advertising spending. Moreover, the company’s core
audience is dispersing to smaller channels and online video services. As a result, since
2010 total revenues have remained relatively flat. TF1 initiated an optimisation plan in 2012
to control costs and adapt its business model to the shifting environment.
TF1’s core channel is seeing a gradually decreasing audience share, but remains France’s
most watched channel. Its advertising revenues are also dropping, down by 6.7% in 2012,
as marketers are pressured to control costs or shift spending to other parts of the world.
However, the company is developing and investing in new theme channels and “new
media” online video services. TF1 has also formed a strategic alliance with Discovery
Communications, one of the largest nonfiction media companies in the world. Going
forward, we believe that the group’s other channels and digital services will be the main
source of revenue growth, while its core channel will remain a “cash cow” at least in the
near to medium term.
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GROUP PRESENTATION
Television Francaise 1 (TF1) is a France-based media group engaged in television
broadcasting and communication services. Its core business is TF1 – a freeview general
channel. The company was privatised and listed on the stock market in 1987. Since then,
TF1 has expanded to operate multiple freeview and pay-TV channels, as well as engaging
in other activities. Through its subsidiaries, the group operates in three main segments:
Broadcasting France (80% of total revenues in 2012), which comprises:
TF1 SA – the leading freeview general television channel in France;
Home Shopping;
Theme Channels, including Eurosport France, LCI, TV Breizh, TMC, NT1, HD1,
TF6, Série Club, Stylía, Histoire, Ushuaïa TV, TF1 Distribution and TF1
Thématiques;
TF1 Entreprises;
Production – TV and film production entities;
e-TF1 – online services;
Other – mainly includes TF1 Publicité and Metro France.
Audiovisual rights (5% of total), including:
Catalogue – mainly comprises TF1 Droits Audiovisuels and TF1 International;
TF1 Vidéo.
Broadcasting International (15% of total) – which includes Eurosport International.
The majority of revenues comes from France with 83% of total in 2012, followed by
Continental Europe with 15%.
Revenue by region in 2012:
Source: company reports
83%
15%
2%
France
Continental Europe
Other Countries
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Optimisation plan
In 2012 the group initiated Phase II of its optimisation plan, focusing on cost-cutting
measures and greater flexibility. This is part of the adjustment of the group’s business
model to a changing environment. TF1 expects to generate recurring savings of €85 million
by the end of 2014, due to optimisation of programming costs, reduced overheads and
higher productivity. During 2012, €15 million of savings have already been achieved.
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GROUP HISTORY
1987: TF1 is privatised and listed on the stock market.
1989: Creation of TF1 Enterprises, including video, telematics, licenses and
merchandising.
1990: Setting up of Banco Production (production of television feature films) and the
acquisition of Protécréa (audiovisual production).
1991: Eurosport network is acquired.
1994: Cable launch of LCI – a non-stop news channel.
1995: Acquisition of 60% of Glem Productions, a producer of entertainment
programmes. Launch of the primary website: www.tf1.fr.
1996: Launch of TPS (Télévision Par Satellite) in partnership with France Télévision,
France Télécom, CLT, M6 and Lyonnaise des Eaux. Creation of TCM (34% owned by
TF1), a company that manages broadcasting rights.
2001: TF1 becomes the sole owner of Eurosport through acquiring the remaining
holdings of Canal+ and Havas.
2002: TF1 increases its stake in TPS to 66%.
2005: TF1 obtained all the rights for exclusive broadcasting in France of the 2010 and
2014 Football World Cup at a cost of €120 million and €130 million, respectively.
Eurosport Group launched its new channel Eurosport 2, broadcasting in 37 European
countries in seven languages.
2007: TF1 acquired a 67.4% stake in Aronet, publisher of the www.embauche.com job
website.
2010: Purchase of the 100% interest in the NT1 channel and the 40% interest in the
TMC channel owned by the Groupe AB.
2011: TF1 purchased 100% of Metro France, a free daily newspaper.
2012: TF1 and the Discovery Communications group announce a strategic alliance.
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INVESTMENT TRIGGERS
Strategic alliance with Discovery Communications
In December 2012, TF1 and Discovery Communications announced the closing of a
strategic partnership. Along with the agreement, Discovery acquired a 20% stake in
Eurosport network, as well as in TV Breizh, Histoire, Ushuaia TV and Stylia channels from
TF1 Group for a total consideration of €184 million. In addition, Discovery has the option to
increase its share in Eurosport to 51% in 2014, in which case TF1 will have the option to
sell the remaining 49%. Discovery Communication is one of the world’s largest nonfiction
media companies.
For TF1, this partnership has several implications and benefits, including:
Cash injection necessary for expansion of operations;
Programming production and sharing;
Improving expertise in content creation;
Development of Eurosport using Discovery’s global footprint and capabilities;
Enhancing the Pay-TV offering in France.
Market leader in France
TF1 operates the leading free-to-view television channel in France. In 2012, its audience
share for individuals aged 4 and over and women under 50 (purchase decision makers)
constituted almost 23% and 26%, respectively. According to the company, the gap over
the next most popular channel is 8.5 percentage points. This provides TF1 with the
opportunity to capture the largest portion (37% in 2011) of the advertising market among
all TV channels.
Solid operating performance of the group’s theme channels and digital activities
Despite the global economic turmoil, the group’s theme channels and digital services have
been the main sources of growth. More specifically, revenues from theme channels
(including Eurosport – France) and digital services (e-TF1) grew each at a CAGR of 14%
over the last 5 years. Broadcasting International (comprising mainly Eurosport
International) also generated increasing revenues (CAGR of 6% since 2008).
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Theme channels and digital activities revenues evolution:
Source: company reports
Digital activities (e-TF1) displayed strong financial performance, with their current operating
margin improving substantially, breaking even in 2010 and reaching 18% in 2012.
Healthy financial position
TF1 has a strong balance sheet, with virtually no debt at the end of 2012. Its net cash
position amounted to €235 million, improving significantly from a net debt position of €31
million at the end of 2011. The cash balance was bolstered primarily by Discovery’s
purchase (mentioned above). Moreover, TF1 is a solid cash generator. The available
liquidity could be used to expand operations, pay dividends and fund acquisitions.
60 73 78 85101
188 194
253
309 320316 319
364 368
406
0
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 2012
e-TF1 Theme Channels – France Broadcasting International
€M
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INVESTMENT RISKS
Challenging environment for the broadcasting industry
TF1 faces increasing competition in the television broadcasting market. As a result, TF1
channel’s audience share has been gradually declining over the recent years, dropping to
nearly 23% in 2012 (for individuals aged 4 and over) from almost 31% in 2007.
TF1 channel audience share:
Source: company reports
All players in the television broadcasting business have to adapt to the fast-paced
development of the “new media” technologies, including online video services. In this
context, the old business models of the TV market (operators and broadcasters) are
adjusting to the transformation of the market’s landscape, while also competing against a
new breed of players. The internet lowers the barriers to entry, but also creates new growth
opportunities. According to Informa Telecoms & Media, companies should focus on four
key areas1 in order to remain competitive: cloud TV, content delivery networks, connected
TVs and social TV. The future of any player in the television broadcasting industry
(including TF1) is largely dependent on how well it incorporates and uses the new
technology to its advantage.
Difficult advertising market
The ongoing global economic turmoil is putting a lot of pressure on companies to cut down
costs. Television advertising budgets are more than likely to be significantly impacted too,
as marketers are looking for more cost-efficient advertising channels, as well as shifting
spending to emerging economies.
1 Source: http://www.informatandm.com/wp-content/uploads/2012/03/The-Future-of-TV-WP-for-IPTV-event-low-res-14th-March-2012.pdf
34.8%
30.9%
29.8%
28.1%
26.7%
25.5%
30.7%
27.2%
26.1%
24.5%23.7%
22.7%
20%
22%
24%
26%
28%
30%
32%
34%
36%
2007 2008 2009 2010 2011 2012
Women under 50, purchase decision makers
Individuals aged 4 and over
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Advertising revenues represent more than two-thirds of TF1’s total revenues. Given the
economic uncertainty, management anticipates consolidated revenues to contract by 3%
in 2013. We expect the largest contraction to come from TF1’s main channel, which saw
weak performance over the last 5 years, as shown in the chart below:
TF1 core channel revenue evolution:
Source: company reports
Although the core segment’s revenues maintained a declining trend, it still generated profits
and cash flows.
Geographically concentrated revenues
As previously mentioned, almost 83% of total revenues are generated in France, a mature
economy. Although there are some growth opportunities driven by new technologies, the
market is also very competitive. More diversification beyond France could benefit the group.
Broadcasting regulatory requirements
Television broadcasting is a tightly regulated industry, primarily due to its “social impact”.
Licensing, content creation and adoption of new technologies are all major areas which are
closely monitored by regulators. Any significant change in legislation could adversely
impact TF1’s operations, leading to higher costs and/or lower revenues.
-4.1%
-13.2%
8.4%
-2.9%
-6.7%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2008 2009 2010 2011 2012
TF1 channel net ad revenue change
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VALUATION
We valued TF1 based on three methods: Discounted Cash Flows method (DCF), relative
valuation using peer multiples, and historical multiples:
Methods Stock price
DCF 8.3 €
Peers 9.6 €
Historical ratios 11.2 €
Average 9.7 €
HISTORICAL RATIOS
This method assumes that valuation multiples may revert to their historical averages:
Historical ratios 2008 / 2012 Corresponding stock price
EV/Sales 0.81 10.9 €
EV/EBITDA 6.6 11.2 €
EV/EBIT 10.8 13.2 €
P/BV 1.32 11.5 €
PE 12.3 9.6 €
Median 11.2 €
PEERS COMPARISON
For relative valuation we chose 7 companies and calculated a respective stock price of
€9.6 per share:
1. Using 5.1x EV/EBITDA, the company’s suggested value is €9.6 per share.
2. At 8.4x EV/EBIT, TF1’s stock is €11.1.
3. At 13.9x 2013 PE, the company is valued at €9.5 per share.
EV/EBITDA EV/EBIT PE 2013
ProSiebenSat 6,6 7,9 13,9
Mediaset 3,0 20,4 83,0
Metropole Television SA 4,3 6,2 13,5
Next Radio Tv SA 10,0 12,3 16,8
NRJ group 5,1 6,8 13,1
Canal+ SA 4,8 8,4 12,6
RTL Group SA 7,7 8,9 14,7
Median 5,1 8,4 13,9
Corrsponding TF1's stock 9,6 € 11,1 € 9,5 €
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DISCOUNTED CASH FLOWS:
The DCF model, based on WACC of 11.8% and terminal growth rate of 1.0% results in
the following:
2012 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e
Revenues 2620,6 2542,5 2578,4 2615,0 2651,8 2688,5 2724,6 2759,7 2793,6 2825,9 2856,5 2885,0
revenue growth % 0,0% -3,0% 1,4% 1,4% 1,4% 1,4% 1,3% 1,3% 1,2% 1,2% 1,1% 1,0%
EBIT 210,4 234,3 230,4 234,9 242,0 249,1 256,5 260,9 265,3 269,4 273,3 277,0
margin % 8,0% 9,2% 8,9% 9,0% 9,1% 9,3% 9,4% 9,5% 9,5% 9,5% 9,6% 9,6%
Dep & Amort 71,8 74,0 76,0 76,0 76,0 76,0 76,0 76,0 76,0 76,0 76,0 76,0
CapEx -51,4 -74,0 -73,0 -74,5 -75,9 -77,5 -79,0 -80,6 -82,2 -83,9 -85,5 -87,2
WCR change 87,6 7,7 -3,5 -3,6 -3,6 -3,6 -3,6 -3,5 -3,3 -3,2 -3,0 -2,8
Free Cash Flow (FCF) 211,1 131,1 126,6 127,7 134,3 139,6 143,3 145,0 146,9 148,4 149,9 151,2
Discounted cash flow 131,1 113,3 102,2 96,1 89,4 82,0 74,3 67,3 60,8 54,9 49,6
Discounted terminal value 463,5
WACC assumptions:
Beta 1,50
Market premium 6,0%
RiskFree Rate 2,8%
Cost of Equity 11,8%
Long-term Equity Weight 100%
Terminal growth 1,0%
WACC 11,8%
DCF valuation M€
DCF stream 920,9
DC terminal value 463,5
Total DC Enterprise Value 1 384,4
Net Cash -366,5
Equity Value 1 750,9
Price target 8,3 €
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FINANCIAL OVERVIEW
Profit and Loss account:
€ millions 2008 2009 2010 2011 2012
Revenues 2,595 2,365 2,622 2,620 2,621
%growth -5.3% -8.9% 10.9% -0.1% 0.0%
Net advertising revenue
- TF1 channel 1,647 1,429 1,550 1,504 1,403
%growth -4.1% -13.2% 8.4% -2.9% -6.7%
- Other media 186 175 244 317 373
%growth 12.2% -6.0% 39.0% 30.3% 17.4% Diversification revenue (excluding advertising)
761 760 829 798 845
%growth -10.9% -0.1% 9.1% -3.7% 5.9%
EBIT 177 101 230 283 258
%margin 6.8% 4.3% 8.8% 10.8% 9.8%
Net Profit 164 114 228 183 136
%margin 6.3% 4.8% 8.7% 7.0% 5.2%
The financial crisis had a considerable impact on TF1’s activity levels as revenues
bottomed in 2009, although they partially recovered in the following year. Since 2010, the
top line has remained flat at €2.6 billion.
Although total revenue remained constant over the last 3 years, its structure has changed.
More specifically, advertising revenues from the TF1 channel have been declining, offset
by growing revenues from other activities.
Net margin fell in 2009 to its lowest but still positive level of 4.8%, pressured by the
economic turmoil. In 2010 the margin recovered to 8.7%, subsequently declining to 5.2%
in 2012 partly due to the non-recurring operating expenses related to the optimisation plan,
totalling about €48 million (during 2012).
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Balance Sheet
€ millions 2008 2009 2010 2011 2012
Goodwill 506 507 884 874 874
Other intangible assets 168 138 147 142 130
PP&E 178 191 186 231 217
Other non-current assets 1,018 307 198 175 188
Receivables 1,227 1,350 1,227 1,242 1,302
Inventories 558 601 631 649 632
Other current assets 76 18 12 6 17
Cash 10 571 39 36 259
Equity 1,377 1,396 1,539 1,575 1,685
Financial debts 729 507 26 77 23
Payables 1,515 1,696 1,639 1,564 1,687
Other liabilities 120 83 122 139 223
TOTAL 3,740 3,683 3,325 3,354 3,618
Net debt/(cash) position 719 -63 -14 41 -235
Working capital 301 263 222 307 259
TF1’s assets are dominated by trade receivables, goodwill and inventory, accounting for
36%, 24% and 17% of total assets (as of 31 December, 2012), respectively. The cash
balance increased dramatically to €259 million at the end of 2012 from €36 million a year
earlier, bolstered by Discovery’s purchase (as mentioned earlier).
At the end of 2012 the working capital surplus amounted to €259 million, decreasing by
16% since the end of 2011.
As of December 31, 2012, nearly 47% of total assets were financed by equity. Trade
payables, the other large item on the liability side, accounted for the same share as equity.
Cash Flow statement
Cash Flows 2008 2009 2010 2011 2012
Net Profit 164 115 229 186 139
D&A 110 103 108 80 75
Other -72 0 -93 7 -40
WCR 6 24 57 -82 88
Operating cash flows 208 242 301 191 263
CAPEX -88 -98 -51 -101 -51
Free cash flows 120 144 250 90 211
TF1 has been generating cash inflows from operating activities in the last five years. In
2012, operating cash flows grew by 37% year-on-year, mainly due to a positive impact of
working capital.
In 2012, TF1 announced a dividend of €0.55 per share, which results in a dividend yield of
6.2%.
NFinance Securities is authorized and regulated by the Financial Services Authority (FSA). Information expressed in this study are submitted for information purposes only
and are in no way an offer or solicitation to buy or sell the securities mentioned above. The information presented in these analyses and / or studies are from reliable sources.
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NFinance Securities uses the following valuation methods:
DCF method: the method of discounted cash flows is to determine the cash flows a company will generate in the future and discounting them at a rate representing the weighted average cost of capital. These assumptions are calculated and defined by the designated analyst.
Peer Analysis: this method calculates valuation multiples of comparable listed companies and apply these ratios to the fundamentals of the company value.
Historical ratios: this method calculates the historical average valuation ratios of the company and to apply its principles.
NAV method: evaluates the assets on the balance sheet at market value by the most appropriate method for the analyst transaction multiples method: consists in applying to the company valuation ratios observed during recent transaction comparable companies.
Recommendations for 11/06/2012
67%
2%
0%
31%
Buy
Hold
Sell
Neutral