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FFI Holdings needs next release to be a hit to start recovery process

According to Liberum, FFI expects the US performance to normalise by the end of this financial year
FFI pioneered the film completion contract

FFI Holdings Plc’s (LON:FFI) share price has yet to recover from the hit its core business of film completion contracts suffered in the wake of the Weinstein scandal.

Completion contracts are tailored insurance policies to make sure films get finished.

Up until last year it had been a solid and predictable business, but the Weinstein scandal rocked the whole industry and FFI felt the effect.

There were 142 projects in the financial year to March 2018, compared to 168 in 2017, according to house broker Liberum.

Group profits fell 49% to US$5.3mln, though this included the US$9.5mln cost of listing on AIM in June 2017.

Underlying profits rose 30% to US$16.6mln while revenues were 52% better at US$58.9mln as service business acquired over the year started to contribute.

FFI expects underlying profits [EBIT] to rise to between US$20-22mln this year, while house broker Liberum forecasts US$20.6mln.

Services and content expansion

Since it joined Aim last year FFI has been using acquisitions to broaden its reach away from the completion contract business.

The group’s first piece of original content, a documentary called Pandas, premiered on 24 March this year to good reviews.

Equipment rental

Equipment rental forms another key plank of FFI’s strategy, with the division now comprising Pivotal and EPS-Cineworks following the latter’s acquisition in November last year.

The acquisition has given FFI around 50-60% of the post-production equipment rental market, with Cinework’s split of 25% to 75% film/television the reverse of Pivotal’s business model.

Post-production should be a growth market given the growth in content from streaming companies.

The shift toward television also look set to benefit the company, with Pivotal’s high-tech equipment and the booming popularity of streaming helping Cineworks.

Reel deal with Allianz

Insurance agency Reel Media, which FFI purchased in December 2017, has been boosted by the transfer of a US insurance book from Allianz.

Cover provided is for events such as death or disability of actors, fire and loss or damage to props, rather than completion contracts, and relates to both TV and films.

Nearly all films that are produced purchase general insurance to cover loss caused by certain insurable risks, says Liberum.

Reel Media will act as general managing agent and be paid a commission on the premiums received.

Film distribution as well

The most recent acquisition, Signature, saw FFI to expand into the film distribution market.

Founded in 2011, Signature has released over 600 titles and acts as an aggregator for Netflix, Amazon Prime and Sky and other streaming services.

Forward view

According to Liberum, FFI expects the US performance to normalise by the end of this financial year (March 2019) with completion contracts to be signed for 150-200 productions.

That would be in in line with historic levels.

Even so, Liberum reduced its price target and earnings per share per estimates for the next two years following the full year numbers.

The target price is now 91p from 100p, but that is still a hefty premium to the current market price of 40p and once confidence increases in the estimates for 2019 and beyond the shares should re-rate added the broker.

FFI is a world leading business in an exciting industry, it says, that has cash on the balance sheet, produced US$17mln of underlying profits last year and has the potential to grow this by 20%.

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