Technicolor (TCH): Robust demand with fulfilment issues

London, UK, 7 February 2022

Technicolor (TCH): Robust demand with fulfilment issues

Technicolor is on track to meet FY21 and FY22 management guidance (maintained at the Q3 results in November) on EBITDA and EBITA, despite supply constraints resulting from the pandemic, and our forecasts for these were unchanged. Demand in both Technicolor Creative Studios (TCS) and Connected Home remains robust, with financial performance constrained in the former by industry talent shortages and in the latter by continuing industry componentry supply issues. With planned cost savings tracking to plan, the shift is continuing back towards the equity, which now represents 35% of the enterprise value. We would expect that a return to focus on the operations should lead to a higher valuation.

With a complex business structure and few genuinely comparable peers, any valuation of the group's equity is inevitably laden with assumptions. We have attempted a sum-of-the-parts based on compiling segmental FY22e earnings-based valuations, variously discounted, which derives a value equivalent to 4.49 per share. A group based DCF, using a WACC of 9.0% and terminal growth of 1%, gives a value of 3.77. Both are considerably higher than the current share price.  

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