A half-year trading update from Facilities by ADF (ADF) has revealed the extent of the impact of the writers and actors strike in the US on the film locations specialist’s trading.
The provider of serviced production facilities to the UK film and high-end television industry said that despite the strikes, high fleet utilisation meant that it would deliver first-half revenues of £21.8 million and adjusted EBITDA of £5.8 million, up from £12.6m and £2.6m a year earlier reflecting the contribution of Location One acquired late last year and continued shift to larger, higher margin productions.
The strikes are causing some disruption to global productions, though, which will hit revenues for the full year assuming there is no resolution to the dispute, as productions scheduled to start filming in autumn 2023 have been pushed into early 2024.
ADF said that unaffected UK projects and pipeline are projected to generate revenues between £35 million and £40 million for the full year ending 31 December 2023, but production stoppages mean that’s 27% lower than broker Cenkos’s previous estimate of £47.6m. The broker has lowered its Ebitda forecast from £12.3m to £7.5m as a result.
However, it has left its 2024 forecasts unchanged on the basis that the strike will be resolved by the year end, and that they in fact may prove conservative given the pent-up demand created by the strike. Streaming providers are facing a shortage of content, which could compound the difficulties they’re facing in attracting new subscribers – Netflix, for example, saw its share plunge after its latest figures were weaker than expected, alongside lowered third-quarter guidance.
ADF said that it’s working closely with production company partners to assess the impact on its planned work schedule for the remainder of the year, and that it anticipates a surge in demand for film and high-end television productions as the effects of the industrial action normalize, like the increased demand witnessed after the initial onset of the COVID-19 pandemic.
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The company’s shares have lost 25% in recent months as the strikes have escalated, with US actors from the Screen Actors Guild joining the Writers Guild of America in action over pay, working conditions, and the threat of artificial intelligence.
But with 2024 forecasts unchanged, and potentially conservative if a production surge follows the strikes, Cenkos argues that the shares are oversold given the one-off nature of the hit to 2023 sales. It notes that ADF’s shares now trade on an adjusted 2024 PE ratio of less than 5x, versus a peers group average of over 8x.
It also suggests that the strike has highlighted the attraction of stronger industrial relations legislation in the UK – where there has been no strike action - which alongside huge investment in film infrastructure taking place across the country is likely to attract more productions. Given its leading position in the industry, ADF looks well-positioned to benefit as the UK film and TV industry's rapid growth continues.
Disclosure: The writer holds shares in the company.