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Citigroup thinks "Pigs Can Fly" as it starts Entertainment One with a 'buy' and 295p target price

The US bank sees scope for around 15%+ upgrades to eOne's full-year 2020 underlying earnings (EBITDA) estimates if divisional margin and retail targets are met
Peppa Pig
In mid-morning trading, eOne shares were up 2.8%, or 6.2p at 227.3p

Citigroup has started coverage on Entertainment One Ltd (LON:ETO) in a note entitled “Pigs Can Fly”, giving the Peppa Pig group’s shares a lift.

The US bank has initiated on the FTSE 250-listed firm with a ‘buy’ rating and a price target of 295p.

In mid morning trading, eOne shares were up 2.8%, or 6.2p at 227.3p.

In the note to clients, Citigroup’s analysts said: “Competition for TV content is driving improving economics for the content owners. eOne’s relationship with major talent should drive up the desirability of the group’s content.

They added: “Successful brands like Peppa Pig and PJ Masks are hugely cash generative.”

Scope for big EBITDA upgrades

The analysts said they see scope for around 15%+ upgrades to full-year 2020 underlying earnings (EBITDA) estimates if divisional margin and retail targets are met.

They also added that as eOne's scale increases, its free cashflow should improve significantly.

The analysts pointed out that with the stock trading at an estimated 10x 2018 price/earnings, it trades at a material discount to the broadcasters, while its sum-of-the-parts-based fair value implies the group’s Film division provides a free option.

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