Shed: one step from the naughty step
Posted on June 15, 2009 by Richard Beddard
Filed Under Companies |
In practice:
Good acquisition, bad acquisition
October’s interims and April’s finals seem to have stopped the rot at Shed Media (SHDP), with a near 20% rise in the share price since October, and adjusted profits up on a per share basis against the sixteen months ending 31 December 2007.
If it’s a turnaround, it’s a curious one because Shed makes TV programmes and its customers, broadcasters, are struggling to make money, due to increased competition from digital channels and Internet TV, and a major recession in advertising. Perhaps content really is king!
The Investors Chronicle makes the case for investing in TV production, including:
- Changes to the law allowing producers to retain rights, rather than hand them over to broadcasters,
- The increasing requirement of broadcasters like the BBC to source programming from independent producers, and…
- The UK’s leadership in exporting programme formats to foreign countries.
Shed, which is responsible for Who Do You Think You Are and The Sorcerer’s Apprentice (‘The Apprentice’ for child magicians). Last year it produced the sublime Oscar winning documentary Man on Wire and the ridiculous scary Supernanny series.
With a board of directors full of programme makers, Shed makes good programmes but can they make money out of them? If not, we may have to put the company on the naughty step…
I’m worried about its acquisitions:
- Wall to Wall, November 2007
- Twenty Twenty, September 2007
- Screentime Partners, September 2006
- Ricochet, November 2005
These companies produce many of Shed’s current hits. Twenty Twenty produces The Choir, Ricochet produces Supernanny, and Wall to Wall produces Who Do You Think You Are? Meanwhile the original Shed Productions’ big hits, Bad Girls and Footballers’ Wives, have been decommissioned in the UK, and the ‘On Air’ and ‘Coming Soon’ sections of its website are a little sparse.
Screentime is a distribution company, which Shed has renamed Outright Distribution.
By acquiring companies with hit shows Shed might have paid too much, distracted by the quality of existing programmes and failing to account for the possibility that in future the company they’re buying may not be so successful.
It would have bought profits, but at too high a cost.
On the other hand, Shed appears to be profiting from its ownership of catalogues of programmes it can sell around the world, and the means, Outright, to sell them. It’s growing revenues in the US, which are now 30% of total turnover and winning US commissions for UK formats like Who Do You Think You Are? Forty-four per-cent of its gross profits come from selling existing formats and programmes produced by Shed and other companies.
One way to adjudicate between these two ‘stories’ is return on assets. If Shed is a more profitable company (it generates more profit from its assets) after the acquisitions, than before, then one way or another the acquisitions were worth it.
Actually, when profits are buffeted by recession and a company has just doubled in size, calculating and interpreting ROA is not as simple as taking the company’s profit and dividing it by its total assets. Assets have increased during the years we are calculating, and profits may be temporarily depressed anyway.
So, the fact that I reckon Shed’s ROA fell last year might be a red herring, but it might also be an early sign of a flawed strategy.
Nevertheless, at well under ten times average earnings, the shares are in bargain territory, Shed is profitable in a recession, and has relatively low debt. I take heart from the absence of acquisitions in 2008 and feel slightly nervous that they are still prominent in its strategy, outlined in its most recent annual report.
Between them, directors own 44% of the shares, which gives them a big incentive to run the company well. It also gives them a degree of control, should they plan to take it private at a stingy price or otherwise trample on small shareholders.
In fact the non executive directors rejected an offer from a consortium including board members last year, and the talks ended in January with approximately 100p per share on the table, 60% more than the market value of the company then, and 50% more than its current value.
Despite its slightly unfathomable strategy, and because of its low valuation and financial strength, I think Shed could be worth 100p too.
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Talking of management teams taking companies private at knock-down prices… This time it’s metal broker Wogen. Graeme was right.
In theory:
Is it a bull? Is it a bear? It’s a bull in a bear.
Allister Heath, editor of City AM, in a candid moment on the limits of the financial media: “Most journalists, unfortunately, followed the consensus view in the last ten years and in the City, there’s only a very small difference between consensus view and herd mentality… It’s quite hard to get original commentary or understanding when you behave that way.” (iBall video).
For the 1.6 trillionth time, says Paul Krugman, we are in a liquidity trap and not facing hyper-inflation. He fears a lost decade.
Simon Johnson tells us where we are now (Answer: Not in a very good place, but it’s lot better than where we’re going).
Is it a bull? Is it a bear? It’s a bull in a bear.
Professor Daniel Corsten says that many current business models were created in times of abundance and hadn’t been tested in times of adversity until now.
We’re going to live three and a half years longer, admit company pension schemes.
New media consultant Alan Patrick says TV will go the same way as newspapers, but the best content creators will do just fine.
There’s a bear market in Ponzi schemes!
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