Questor says HOLD
Shares in eOne, formerly Entertainment One [LON:ETO], fell to a two-year low after the company announced a £200m rights issue to fund the purchase of a bigger stake in the Peppa Pig maker Astley Baker Davies.
The deal will see the FTSE 250-listed company increase its control over Peppa Pig profits to 85pc, from 50pc previously. Investors are being asked to take up their rights in a 4 for 9 share issue to raise £194m net of expenses.
The purchase of rights over content fits the long-term strategy of the company. Last year it paid $132.6m (£98m) for a 51pc stake in the Mark Gordon Company, which produced the hit TV show Grey’s Anatomy and Hollywood blockbusters including Saving Private Ryan. The first major deal was for Alliance Films, the Canadian distribution company, in September 2012 for C$225m (£123m).
Revenues from distributing films make up 75pc of the group total, with the balance largely made up of TV shows. Revenue from films was down 13pc last year, after a sharp slowdown in revenue from box office releases. This was offset by strong growth in the TV business on the back of Peppa Pig sales.
It has been a rollercoaster ride for investors this year. The shares fell sharply when the growth fund Marwyn sold a 9pc stake in July, only for them to bounce back when Marwyn exited its remaining holding two weeks ago. The sale should not come as a surprise, as Marwyn has made 4.3 times its original 2007 investment and had failed to find a trade buyer such as Sky.
The shares are down 20pc from our initial advice (Buy, 311p, January 7), and until we get a clearer picture of the earnings we downgrade to a hold.