Entertainment One trades at significant and unwarranted discount, Canaccord says

Shares of Entertainment One were trading at a “significant” and “unwarranted” discount to its peers, regardless of whether a formal bid for the company would be forthcoming or not, Canaccord Genuity said.

When pigs fly

Shares in the company, best-known perhaps for the 50.0% stake it owns in The Mark Gordon Company, the producer of Peppa Pig and Grey’s Anatomy, spiked 13.6% on 14 April to 180.1p – a year-to-date high - following a Bloomberg report that ITV was pursuing a takeover of ETO.

That was despite Entertainment One’s quick communication to the markets, on Thursday, that it had received no approach so far.

“Whether any formal bid is forthcoming or not, we believe this has illustrated a valuation discrepancy – Entertainment One trades significantly lower than peers, and we believe the scale of this discount is unwarranted,” Canaccord Genuity analysts David Amiras, Simon Davies said in a research report sent to clients.

Canaccord’s long-held view was that ETO was an “attractive business”, with a content library valued at over $1bn and a growing TV&production sales business.

ITV, for its part had been bulking up its international content, saying it was focused on “creating, owning and exploiting rights in key genres that travel.”

Valuation discrepancy

Stock in the firm was left trading on 7.5 times its 2016 enterprise value-to- earnings before interest, taxes depreciation and amortisation and 9.0 times estimated earnings for 2016.

Its peer group on the other hand was changing hands on 10.6 times EV/EBITDA and on 15.9 times forward earnings.

Amiras and Davis reiterated their 'buy' recommendation and 225p target price on the stock.

As of 12:54 BST shares in Entertainment One were drifting 0.61% lower to 179.0p, well off their 52-week high of 328.35p.