Citi starts Entertainment One at 'buy'

Citi started its coverage of Entertainment One at a 'buy' and with a 295p target price, pointing to what in its opinion were multiple positive characteristics which had thus far gone unappreciated.

In a nutshell, as a sizeable standalone content asset in a fragmented market it was a "rarity", the broker said.

On the product side of things, its relationships with the major talent such as Mark Gordon and Steven Spielberg should drive strong revenue growth.

In terms of its addressable market, market forecasts failed to account for the optionality offered by success in Asia.

Financially, there were multiple levers the company could pull in order to boost profitability, Citi added.

"There are plenty of levers for margin improvement as the group benefits from the competition for sought after content, moves towards closer co-operation between its divisions, and shifts away from physical distribution," its analysts said.

Citi estimated the company's 2020 EBITDA earnings might be boosted by as much as 15% in comparison to its analysts' current projection.

With increased scale would come a significant improvement in its ability to generate cash, according to the broker, which added that its free cash flow estimates for the animation firm were 30% above consensus.

To boot, at a 2018 price-to-earnings multiple of 10 the shares were changing hands at a "material discount" to more challenged rivals and the independent library's valuation - at 20% higher than the company's market capitalisation - was "anomalous".