Last Thursday Facilities by ADF (LON:ADF), the leading provider of premium serviced production facilities to the UK film and high-end television industry, announced a cracking and very strategic acquisition, which I believe will get its shares moving a great deal higher.
They could well double within the next year.
The Business
The ADF production fleet is made up of some 700 premium mobile make-up, costume and artiste trailers, production offices, mobile bathrooms, diners, school rooms and technical vehicles.
The group serves customers in an industry that has experienced significant growth in recent years, with additional demand driven by a material rise in the consumption of film and HETV content via streaming platforms such as Netflix, Disney+, Apple TV+ and Amazon Prime.
The UK film and TV industry has directly benefited during this growth due to the quality of its production facilities and studios, highly skilled domestic workforce, geography, accessibility to Europe, English language environment and strong governmental support.
Major US streaming companies have now set up permanent bases in the UK, with the UK now the film and TV industry’s second largest operation after North America.
Strategic Aim
The group, which is looking to become a one-stop-shop for film and HETV production, is committed to growth with an ambition to increase its revenue to £100m in the medium-term through organic means, by both investing in revenue generating fleet equipment, as well as through making appropriate acquisitions.
In November 2022 it acquired Location One, the UK’s largest integrated TV and film location service and equipment hire company, in a deal offering highly complementary services, providing significant cross-selling possibilities to the enlarged group, while also delivering efficiencies operating through central services.
The £21.3m Acquisition Of Autotrak
With over 30 years of location experience, the Oxfordshire-based Autotrak Portable Roadways, is one of the market-leading suppliers of portable roadway to many of the world’s largest production companies and streaming platforms in the TV & Film industry.
With a client base of over 165 customers, it supplies a range of aluminium and plastic panels, flooring, roadways, pathways, matting, secure storage and security fencing to festivals and other events and the construction sector, as well as the TV & Film industry.
It has expanded significantly in recent years through investment in its capacity of panels and installation vehicles, with £6.0m invested in panel inventory between 2019 and 2023, taking total panel inventory to over 17,600.
ADF CEO Marsden Proctor stated that:
“I am delighted to announce the conditional acquisition of Autotrak, which marks a material step in our stated strategy of being the provider of choice for the HETV & film industry across a diversified product and service offering.
The Acquisition will therefore be a further endorsement of ADF’s aspirations of generating £100m of revenues in the medium term.
ADF already has an excellent working relationship with Autotrak which has provided demonstrable evidence of the strong cultural and technological fit which will be of great benefit to the enlarged Group’s customers.”
Part of the £21.3m deal will be funded by a £10m Placing of 20m new ADF shares @ 50p each, which was heavily oversubscribed.
Analyst View
At Cavendish Capital Markets, Director of Research Andrew Renton is obviously very keen on the enlarged group’s shares.
His estimates for the current year to end-December are for £48.6m (£34.8m) revenues, while adjusted pre-tax profits are set to rise more than five-fold to £5.5m (£0.9m), lifting earnings to 5.7p (1.3p) and paying a 1.5p (1.4p) per share dividend.
However, after the Autotrak deal, he sees boosted sales to £67.3m in 2025, with profits of £12.1m, generating 9.7p a share in earnings and lifting the dividend to 2.6p per share.
Fixing a 100p a share Price Objective on the enlarged group’s shares Renton concludes that:
“Post-acquisition, ADF looks very compelling on an FY25E Adj P/E of just 5.5x vs equipment hire peers on 9.1x despite having an FY22A-FY25E EPS CAGR of c.20% vs peers on c.10% and net margins of c.16% vs peers on c.9%.
FCF yield and ROCE both look highly attractive on c.16% and c.20%, respectively, and with the bulk of capex already completed, both metrics should continue to trend higher over the coming years.”
In My View
Having been knocked for six by the Film Strikes last year, before this deal the group was already looking stronger, boasting that it had a very healthy order book.
But now with this very attractive and strategic purchase, I consider that ADF shares, at just 53p, will be soon heading a lot higher in price and are a very attractive purchase for growth investor portfolios.
Inside the next year or so they could so easily double and still look cheap.