Peel Hunt downgrades Entertainment One after rights issue

Peel Hunt downgraded Entertainment One to ‘hold’ from ‘buy’ and cut the price target to 260p from 340p, as the rights issue is digested by shareholders.

The brokerage noted that Entertainment One has increased its exposure to Peppa Pig at a cost of £140m through the purchase of ABD and has raised £193.6m by way of a rights issue.

“On balance, we are of the view that a sale of the existing stake in Peppa Pig would have been strategically better, a route the company should still consider. The overfunding will dilute earnings and the EPS growth rate reduces,” it said.

Peel said the value of Peppa Pig to a broad-based brand owner will peak soon, maybe even as soon as now.

"We hope that Entertainment One will look to realise that value for the benefit of shareholders in the near future,” it said.

The purchase of ABD may facilitate that sale although raising cash through equity dilutes the benefit of this deal, the brokerage said.

Peel added that the Marwyn sale, alongside the overfunded rights issue, will take some time for the market to absorb.

“This indigestion prompts the ‘hold’ recommendation."

At 1050 GMT, Entertainment One shares were down 2.7% at 225.90p.