Digital Offerings And African Markets Will Create New Opportunities

Key Takeaways

• The expansion into digital offerings aims to position TF1+ as a premium platform, potentially boosting advertising revenue and overall earnings.
  
• Strategic focus on French-speaking African markets and popular programming could aid audience growth and stabilize or grow advertising revenue.
  
• Uncertainty in the advertising market and tax expenses may pressure TF1's traditional revenue sources and impact net income and growth forecasts.

Catalysts

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

• TF1+ experienced a 37% increase in advertising revenue year-on-year, and intends to maintain strong digital growth momentum, impacting future revenue positively.
  
• The TF1 Group plans to expand its digital offerings, aiming to position TF1+ as a premium alternative to YouTube, which could significantly boost digital advertising revenue and improve overall earnings.
  
• The Group's strategic focus on international expansion, particularly in the French-speaking African markets, is expected to reach over 150 million people, aiding revenue growth.
  
• Innovations in ad formats and the simplification of ad campaign purchasing could enhance advertiser demand, potentially increasing the platform's net margins.
  
• TF1's strategy of maintaining a strong lineup of popular French drama and entertainment programming, alongside major sporting events, is expected to sustain high audience figures, thereby stabilizing or potentially growing linear advertising revenue.

TF1 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TF1's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.7% today to 9.4% in 3 years time.
• Analysts expect earnings to reach €229.7 million (and earnings per share of €1.14) by about May 2028, up 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 11.5x on those 2028 earnings, up from 8.6x today. This future PE is greater than the current PE for the GB Media industry at 11.1x.
• 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 5.96%, as per the Simply Wall St company report.

TF1 Future Earnings Per Share Growth

Risks

• The advertising market is described as having very limited visibility, which could create uncertainty and potentially impact future revenue streams.
  
• The 37% growth in advertising revenue from TF1+ contrasts with the possibility of decreasing linear advertising revenues, suggesting potential pressure on traditional revenue sources.
  
• Studio TF1 saw a decline in revenues excluding new acquisitions, which could reflect potential weaknesses or challenges in sustaining revenue growth from certain segments.
  
• An exceptional tax expense impacts net income, and the anticipated tax impact for the year could reduce net margins.
  
• The start of Q2 is softer than expected due to changes in the advertising market environment, which could affect earnings consistency and growth forecasts.

Valuation

• The analysts have a consensus price target of €10.508 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 €7.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.4 billion, earnings will come to €229.7 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €8.4, the analyst price target of €10.51 is 20.1% 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.