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FFI Holdings Plc: THE INVESTMENT CASE

FFI Holdings builds on a position of strength

Some of the most famous films ever made have been backed by FFI since it was founded in 1950
picture of Hunger Games cast
INVESTMENT OVERVIEW: FFI The Big Picture
FFI helped finance 2012 blockbuster 'The Hunger Games' starring Jennifer Lawrence

Film making is a risky business and before any cameras start rolling a visit to FFI Holdings Plc (LON:FFI) is usually in order.

FFI is the world’s leading issuer of completion contracts.

They do what it says on the can. If a film is not completed or runs late, the contract kicks in and it is beholden on the contract issuer to make sure the film gets made or the backers get some or all of their investment back.

Offloading risks of film/TV production

“These contracts help offload risks to production budgets and timelines for financiers, as well as for FFI through long-standing insurance relationships,” it said. 

Some of the most famous films ever made have been backed by FFI.

From the first Bond film, Dr No, in 1962 to The Hunger Games in 2012 and last year’s blockbuster La La Land, FFI has issued contracts on approximately 1,700 productions with gross budgets in excess of US$17bn.

Dominant market share

Having come up with the idea of completion contracts in the first place the group has an 80% share of the market 

Founded in 1950 in the UK, the HQ is now in Los Angeles with the first completion contracts recently signed in China.

Trading last year was good with underlying profits of US$12.7mln on revenues of US$38.8mln, up 9%.

Those strong numbers helped FFI raise £26.5mln when it listed on Aim in June.

Using that cash the emphasis has switched to ancillary services such as post production work and equipment rental.

Cineworks acquisition boosts ancillary offering

November saw the acquisition of digital post-editing equipment rental group Cineworks Digital Studios, its first deal since listing on AIM.

EPS-Cineworks has a strong market presence in North America, especially in post-production work for television and independent projects.

Growth here is being driven by smaller content providers such as streaming companies that do not have post-production capabilities.

Sales were US $9.4mln in 2016 on which EPS-Cineworks made underlying profits [EBITDA] of US$2.7mln. 

EPS-Cineworks management is staying on and FFI sees many synergies between the business and Pivotal Post, which was acquired in February 2017.

Kevin Hyman, Pivotal Post’s chief executive, will manage the combined operation.

Steven Ransohoff, FFI’s chief executive, said: "Today's transaction underscores FFI's commitment to expanding its ancillary business offerings, in line with the diversification strategy we set out at the time of our IPO.”

Liberum sees good fit with Pivotal

House broker Liberum said the acquisition will give FFI 50-60% of the post-production market to add to its dominance in completion contracts.

Cinework’s business is split 25% theatrical and 75% televisions, which is the mirror image of Pivotal.

Through its relationship with Spielberg, Pivotal also has some high tech equipment that it can share with EPS-Cineworks.

“Post-production should be a growth market given the rise in the amount of content coming from streaming companies, who do not have traditional post production capabilities.

“The business has an attractive EBITDA margin [profit] of 29%, which can be increased though the synergies.”

Attractive purchase price

Liberum added the price for EPS-Cineworks looks modest and the broker has a target price of 182p.

Shares were trading at 155p, valuing the company at around £250mln.

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