NENT Group has received another strong endorsement from an investment bank. Analysts at Berenberg say that the OTT broadcaster’s Q4 results were solid despite its core numbers falling slightly below forecasts.
On February 10th NENT confirmed its intention to raise equity. NENT said it would be aiming to raise SEK4 billion (€04,bn) through an accelerated book build. The issuance was in fact significantly oversubscribed and the amount raised (before costs) was cSEK4.35 billion through the issuance of 10.6 million class B shares at an issuance price of SEK410 – a c3 per cent discount to the previous close price.
“The secondary listing, which many expected to occur, was not pursued, which we believe is due to the fact that the company has now made good progress in the main stated aims of a potential US listing – increased trading liquidity and active analyst coverage – and thus did not consider the cost of the secondary listing to be warranted,” said Berenberg.
NENT now has a ‘war chest’ in hand. The bank adds: “We have highlighted in previous research the ambition outlined by NENT Group at its November Capital Markets Day to become the ‘European streaming champion’ through a five-year plan that involves international expansion of its Viaplay platform to 15 new markets, starting this year with the Baltics (March), Poland (August) and the US (late 2021). The expansion is expected to incur a total EBIT loss of cSEK2.5billion by the end of FY 2025, which will be facilitated by the now-completed equity issuance as well as the SEK1.2 billion special dividend received from Allente in Q4. Although we expect further international expansion after this five-year period, by that point we forecast a strong net cash position for the group and a c8 percent Free Cashflow margin, which will facilitate further international expansion without the need to raise more capital. The cash raised also provides a level of financial flexibility that will allow NENT to take advantage of breakthroughs in sports contract negotiations, ensuring there is scope for upfront payments for any target sports rights that become available in new or existing markets.”
Berenberg acknowledged (prior to the equity raising) that 2021 growth was always going to be slower, and NENT’s shares fell “materially” after the results. The bank says some investors expected some 600,000 net additions per year as suggested in NENT’s guidance back in November last year. This time around NENT guided to a lower net achievement of some 400,000 extra subscribers.
“The international subscriber outlook of 250,000 was below our forecasts, but we would expect management to guide conservatively as this is the first foray into these markets and distribution agreements could lead to an improved outlook,” says the bank.
“The benefit of price increases will not be fully felt in 2021 ARPU, as most of the subscriber growth will be through third-party distribution agreements and we expect lower sports subscriptions in the revenue mix following the loss of Champions League rights in Sweden and Norway,” adds Berenberg.
“For 2022 onwards, we increase both our revenue and programming costs forecasts, based on management commentary about its continued ambition on sports rights acquisition (particularly in Poland), with the effect being an EBIT reduction in 2022, followed by an improvement in 2023 – the year in which international losses will peak, but Nordic operating leverage should take effect following a full year of the Premier League in Norway.”
Berenberg reiterates its advice to clients, as a “BUY” adding “This is a long-term growth story, so the importance of 2021 will reside in the initial launches in international markets – starting with the Baltics in March – and the early signals of adoption in new markets.
Now, with fresh funding in the bank, Berenberg says: “With the capital raise completed, the focus among investors will now lie in the ability of the Viaplay platform to achieve its subscriber targets – 6 million and 4.5 million in the Nordics and international markets respectively by 2025. We would reiterate at this point that the 2021 outlook of 400k and 250k new subscribers suggests that NENT is on course to achieve these targets, based on our non-linear subscription growth outlook.