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FFI Holdings to address stuttering share price as film business remains subdued

Interim profits showed a modest recovery with the number of contracts signed rising to 77 from 74 a year earlier

FFI pioneered the film completion contract

FFI Holdings Plc’s (LON:FFI) (ASX: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.

READ: FFI lowers expectations as film business remains subdued

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.

Interims showed a modest recovery with the number of contracts signed rising to 77 from 74 a year earlier, but these were lower value than previously and fees dropped to US$13.9mln from US$15.2mln.

FFI now expects annual underlying profits [EBIT] to undershoot its previous target of US$20-22mln.

House broker Liberum suggests a total around last year’s US$16.6mln or perhaps a little better if a trading tailwind picks up.

Board to look at share price performance

In the interim statement, FFI added the board was disappointed by the company's 80% price share price slide since it joined AIM last year and is committed to exploring the options to address this issue.

Since it joined AIM,  FFI has been using acquisitions to broaden its reach away from the completion contract business.

Equipment rental

Equipment rental is now a 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.

Pandas flops

Revenues from FFI’s first piece of original content, a documentary about Pandas, have also disappointed in spite of decent critical reviews amd Liberum does not expect any profits now from the film.

Forward view

Assuming the US film insurance performance normalises by the end of this financial year (March 2019), completion contracts should be signed for 150-200 productions.

That would be in in line with historic levels.

Liberum kept its 91p target price, which is still a hefty premium to the current market price of 29p and that gives a market value of £49mln.

The bull case remains that FFI is a world leading business in an exciting industry, it says.

It should also finish the year with cash of about US$10mln on the balance sheet.

Quick facts: FFI Holdings PLC

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Market: AIM
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