Peel Hunt downgrades Entertainment One after interims, debt refinancing

At the pre-finance level Entertainment One’s financials didn’t change much after the company’s latest set of interims, but the immediate revenue and costs had shrunk and its recent refinancing would significantly increase its debt costs, Peel Hunt said in a research note sent to clients.

Furthermore, there was no sign of a move to cash inflows in the foreseeable future, Peel Hunt said.

At 6.875% the coupon on its £285m senior notes with maturity in December 2022, together with continued funding from IPF and a £100m revolving credit facility entailed a “significantly” higher debt cost, the broker pointed out.

Analyst Malcolm Morgan added that: “The shares look inexpensive but the propensity for major swings in elements of the forecasts is high. This undermines the good track record of delivery at the net level.”

The number cruncher also took aim at the fact that accounting changes and unlooked-for provision releases linked to Peppa Pig were behind the company's "pleasing" operating profits at the EBITDA level.

Not long ago, the company was saying senior debt would be extinguished in the near future which followed on the heels of the rights issue to acquire Peppa Pig.

Making matters worse, Morgan didn’t expect the film and television content producer and distributor to be free-cash-flow positive over the next three years.

The analyst downgraded his recommendation on the stock to a ‘reduce’ from ‘hold’, with a target price of 200p, down from 260p.