The writers’ strike in the US has brought Hollywood to a standstill, which makes half-year numbers from production support specialist Facilities by ADF (ADF) all the more impressive. The company delivered sales of £21.8m in its first half, a 73% jump on the period a year earlier of which 30% (?) was organic growth, leaving it on track to hit full year expectations. 

Better still, adjusted Ebitda and pre-tax more than doubled, to £5.8m and £2.7m respectively, as a focus on larger and longer productions centred around the main London studios boosted profitability. Alongside a reduction in the use of more costly agency drivers, that lifted gross margins from 33% a year ago to 38.8% in the period - that’s despite pricing competitively to pick up more domestic productions to keep its fleet in use.  

Although the group has been hit by the writers’ strike, it has continued to invest in growth to capitalise on the growth in film and TV production that’s expected to continue once the dispute has been resolved. As well as completing the integration of recently acquired Location One, it added 108 units to its fleet to take full advantage of the HMRC super-deduction capital allowance regime, taking the total to 700. The company has sensibly put further acquisitions on hold until visibility on the US strike improves.

Nevertheless, having worked on 46 productions in the half it said it was already seeing increased demand from all major streaming producers, and that full year forecasts assumed no resolution to the US strikes. Broker Cavendish noted that representatives of unions and studios are due to meet this week, and that there are “tentative signs that negotiations could start to progress”.

Cavendish points out that the shares trade on a forecast 2024 PE ratio of just 6x, well below the peer group average and failing to reflect the potential upside as acquisition resume in line with ADF’s strategy. 

 

View from Vox

ADF has performed admirably given the upheaval in the film industry which recent reports suggest have left nearly three quarters of freelance film crew in the UK out of work.

However, the industry trends towards streaming content remain intact, and ADF is putting all the pieces in place to become a truly one stop shop for UK location productions, and poised to tap into the enormous pent-up demand the strike has created.

Alongside the lowly valuation, an increased divided of 0.5p a share – from 0.46p last year – is the icing on the cake. 

Disclosure: the author hold shares in Facilities by ADF