Acquisition Of Johnson Production Group And African Expansion Will Broaden Global Audience

Key Takeaways

• Strong advertising revenue growth driven by increased CPM rates, ad load, and viewing hours boosts digital revenue.
  
• Strategic expansions and acquisitions aim to enhance market presence and revenue through international growth and content development.
  
• High programming and investment costs, stagnant advertising market, and tax hikes in France pose profitability challenges despite efforts for TF1+ expansion.

Catalysts

Engages in the broadcasting, studios and entertainment, and digital businesses in France and internationally.

• Strong growth in TF1+'s advertising revenue is expected to continue, supported by increased CPM rates, higher ad load, and a significant rise in viewing hours, which will drive digital revenue growth.
  
• The expansion of TF1+ into French-speaking markets, such as Africa, in 2025 aims to further increase the audience base, enhancing advertising potential and contributing to revenue growth.
  
• The acquisition and integration of Johnson Production Group will bolster Newen Studios' revenue and margins, as it provides access to the North American market and synergizes with other media activities.
  
• Planned expansion in premium sports and entertainment content, along with a new pricing strategy in linear advertising, is expected to consolidate TF1's market share, helping to stabilize or grow linear ad revenue.
  
• The rebranding of Newen Studios to Studio TF1 and the focus on international content development will enhance Newen's global appeal, potentially increasing revenue through worldwide sales of intellectual property.
  

TF1 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TF1's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.7% today to 7.8% in 3 years time.
• Analysts expect earnings to reach €194.8 million (and earnings per share of €1.0) by about March 2028, down from €205.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 8.6x today. This future PE is greater than the current PE for the GB Media industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.15%, as per the Simply Wall St company report.

TF1 Future Earnings Per Share Growth

Risks

• The stagnant linear advertising market presents a challenge as TF1 Group aims to increase its market share and maintain its linear revenue, which could potentially limit revenue growth opportunities.
  
• High programming costs and investments in TF1+ could pressure profit margins, even as the company aims for a stable margin despite ongoing competition and a challenging market environment.
  
• The potential impact of recently announced tax increases in France, which could affect earnings per share, presents an additional financial risk, further impacting profitability.
  
• The significant marketing and technology investments required to push and promote TF1+ may not yield immediate returns, impacting net margins in the short term.
  
• Challenges related to international expansion and entry into new markets, such as the planned TF1+ expansion into French-speaking Africa, could involve execution risks and uncertainties, affecting future revenue streams.

Valuation

• The analysts have a consensus price target of €10.417 for TF1 based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €12.8, and the most bearish reporting a price target of just €7.6.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.5 billion, earnings will come to €194.8 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of €8.41, the analyst price target of €10.42 is 19.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.