last year from Allenby capital 7 Feb 2014 08:47
A specialist in animated TV and feature film production
DQE is one of the world’s leading independent animation production and
distribution companies focusing on the production of high quality 2D, 3D and
CGI animation for global audiences. The majority of productions are destined
for release as TV series and on home video, the demand for the former being
driven by the plethora of new digital satellite and cable channels.
Moving up the value chain
Over the past several years DQE has engaged with third party studios as a
minority co-producer of animation features and more recently has begun
establishing its own proprietary content, the most important being The Jungle
Book, which is currently in production for its second TV season and is due
for global release as a feature film in 2015-16. The expansion of the group’s
activities into co-production and majority owned IP generates significant
licensing and distribution revenues attracting higher margins and improved
revenue visibility while the business model is designed to minimise the
operational risk that may be present when funding productions. The Jungle
Book TV franchise alone has generated revenues of c.INR990m for the group
over the past two years and similar opportunities exist to exploit the other
properties in its growing IP portfolio.
Seriously undervalued
In our opinion, the DQE shares price bears little relationship to its growth
profile over the last few years, or our earnings forecasts over the next two.
With a maiden dividend expected to be declared for the current year and
taking into account the metrics of comparative businesses, we believe that
initial fair value of 50p is appropriate, at which price the PE ratio would rise
to a still undemanding 7.4x offering substantial upside potential from the
current share price of 12.625p
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