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FFI Holdings Plc: THE INVESTMENT CASE

FFI Holdings steadies ship after Weinstein storm

The group’s first piece of original content, a documentary called Pandas, premiered on 24 March this year, to positive reviews.
Clint Eastwood
INVESTMENT OVERVIEW: FFI The Big Picture
Are you feeling lucky or do you want a completion contract?

Film insurer FFI Holdings Plc (LON:FFI) can legitimately claim it was hit by something exceptional when it warned on profits in December.

The business has at its core a product it invented – film completion contracts.

Film must be finished

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 (ie FFI) to make sure the film gets made or the backers get some or all their investment back.

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 financial year 2018, compared to 168 in 2017, according to house broker Liberum.

The three largest films that were cancelled totalled $3.5m of bonded fees, while numerous other titles were also impacted.

Liberum expects underlying profit (EBIT) from the completion contract division to reduce 31% to US$8.2mln this year, although that is better than the broker previously expected.

Weinstein effect a one-off

While last year’s weakness was disappointing, the industry scandal should be an exceptional event and management indicates that there are already signs of normality said Liberum.

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

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

A global launch is planned for the Autumn, and Liberum forecasts that the film can generate underlying earnings of US$3.5mln in 2019.

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 Cineworld’s split of 25% to 75% film to 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 look set to benefit the company, with Pivotal’s high-tech equipment and the booming popularity of streaming serving as key positives for Cineworks’ growth prospects.

Reel deal with Allianz

Reel Media, which FFI purchased in December 2017, will also be 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.

The latest acquisition, Signature, helps 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.

Interims stabilise

In the half-year statement, trading has been as expected said FFI, which expects to report underlying profits [EBIT] in the middle of a previously indicated range of US$15-18mln in the year to March.

Liberum forecasts US$16mln and has a target price of 100p compared to 81p in the market.

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