When it comes to newcomers arriving on the stock market, I confess to being quite picky with any potential involvement and it isn’t an area that has historically featured largely for me.
That said, over the last year to eighteen months, those that I have taken an interest in have thus far performed very well, namely Calnex, Fonix, LST and CMO, with IIG being the only disappointment to date.
Last week, another potential opportunity was brought to my attention, this being the first AIM debutant of 2022 and after taking a look, I subsequently made an initial purchase.
This comes in the form of Facilities by ADF, the ticker being ADF which arrived on the AIM at a listing price of 50p per share, but today stands at 61p following an 8% uplift this morning.
The company is quite an easy one to get the head around and is a provider of extensive support facilities to the film and TV sectors, where it supplies and operates the likes of changing and make-up trailers, along with costume and production units amongst others.
In all, it is a one stop support solution to enable films and high end dramas to be made and progress, where it has supported the making of the likes of Peaky Blinders, Killing Eve, The Crown and His Masters Dark Materials.
Having been founded by Andy Dixon back in 1993, the business has grown steadily over the years with a noted acceleration in more recent times, save for a Covid induced hiatus in 2020.
Operating in an area now enjoying significant growth and activity fueled in part by the advent of streaming, ADF works for and with some of the biggest industry names, including Netflix, BBC, ITV, SKY, Disney and Apple.
The company is already set to work flat out until the end of 2022 which provides for welcome visibility and perhaps more importantly, the major names that it supports also appear to be confident in their own prospects ahead.
To give a flavour of this, ADF highlights in its admission document that some of the world’s major names and players have more recently set up significant long term operations in the UK, which should in turn provide for growth opportunities for the company.
Netflix alone has signed a ten year lease at Shepperton studios in London, whilst Disney also inked a long term lease at Pinewood Studios in 2019.
Of particular note is that the UK is Netflix’s third biggest production base outside of the USA and Canada and it spent some $1bln on film and TV in the territory last year.
The trend doesn’t however stop with Disney and Netflix as Sky has also been investing in a new major complex at Elstree in Herts and others are now also looking to scale up their operations to support content.
This has collectively got to be positive news for ADF which already boasts around 30% of the UK market and has seen its revenue and margins increasing impressively in recent years, save for that 2020 blip.
In 2018 the company generated revenue of £12.6m with an EBITDA figure of £2.3m which increased to £15.9m and £3.3m in 2019.
Not surprisingly 2020 was a difficult year which saw income curtailed at £8m, but it bounced back in impressive style for the first half of 2021 with £11.5m of revenue achieved and EBITDA at £4.17m.
With a market cap of £46m at the current price, ADF looks to me like one of those stocks that has come to market at a reasonable or modest price, given the potential ahead and could offer some very welcome future upside for investors, provided things progress as envisaged.
To learn more about the company and its prospects I was able to speak with management yesterday, which provides for some further flesh on the bones along with insight into the investment case.
Both the CEO, Marsden Proctor and Chairman John Richards were on hand to talk me through the business, giving a flavour of what investors can expect moving forward.
Richards is perhaps better known for his association with Brickability but certainly sounds enthused with his role at ADF and the opportunity that lies ahead.
Recapping on the roots, Richards says that the business grew from its initial one vehicle to additions each year but was restricted by finance to really scale up.
He adds that Marsden Proctor came on board about six or seven years ago and was followed by a new CFO which with their combined expertise culminated in the company securing additional finance and better facilities via HSBC and Barclays in order to take the business forward.
“We are now the biggest provider to the high end TV and that area is growing really fast and exploding with the streamers” Richards says.
He adds that they now have over 500 vehicles and these consist of make up, costume, artiste trailers and production units and adds that importantly they are the only UK ALBERT approved operator, that being the gold standard across the industry.
This, it appears, holds them in good stead and Richards reiterates the major names that ADF works with, “our customers are the big streamers, Netflix, Amazon, Sky, Disney, Apple where we have wonderful relationships with them. The UK film and TV industry is running at record levels and that is set to grow further still”.
Richards acknowledges that there are substantial tax breaks associated with investment in the sector, but says it isn’t all about that which is driving the industry. “The people want to come here because as a nation we are actually very good at it, whether that be producers, actors, lighting, sound technicians or studio space where the streamers are expanding hugely, so we are a
world leader in high end TV and film making”.
Speaking of the half year numbers for the company the Chairman says that one of the great things about the business is the visibility.
“We already know that for 2022 this year we are 90% sold out and already significantly sold for 2023 and because of the shortage of facilities and the massive demand from the streamers we are basically having to ration people”.
Talking of the ambitions going forward Richards says that growing it to £100m plus of revenue is very much in sight and that it won’t be reliant on the one area of facilities.
“There are people we could acquire and we have some thoughts on that” he says and expands. “There are those out there that are concentrated on specific lighting or sound equipment along with catering, so there are things in parallel that we could go to, along with organic growth”.
The strength of the overall operation of ADF is in the first rate and highly regarded service delivered and that is something that is clearly key to the business and has seen it prosper and forging strong relationships with the major names.
And looking at the space in which it operates, ADF would appear to have solid prospects on which to further build as Richards confirms that it is a very fragmented area, hence the opportunity to acquire.
There are two other big players alongside ADF he says, one of which is Movie Makers whilst there is a fourth which has about 10% of the market. “Other than those, the space is hugely fragmented with Mum and Dad kind of businesses with just a few trailers here and there”.
CEO Marsden Proctor knows them very well Richards says and adds that some of those kind of operators do the job very well in localised areas, hence they could prove to be an ideal addition.
Rather than change their brand however, the plan would probably be to incorporate them as they are, retaining their own identity but providing them with the resources to expand.
In terms of operations and growth beyond the UK, CEO Proctor says that a few years ago they had been looking to expand into Spain which is used quite a lot in filming and where the Crown series has for example been active. “Spain is actually used quite a lot, but isn’t served by much in the way of facility providers out there.
But, the biggest problem we have had in the last couple of years is that we haven’t been able to service the demand on our own doorstep, which comes first. Going to other areas is something we would do, but we need to service the demand that is knocking on our own door in London, the North and Scotland”.
That said, Proctor points out that the company already undertakes work overseas such as with the Crown or mcmafia which film on location.
Having previously revealed their half year numbers prior to coming to market, the two key players are reluctant to divulge anything further at this stage. Chairman Richards does however add, “everything we have said about the market has been very cautious and conservative, but it is absolutely flying.
There is no price increase resistance, everything is flat out and the biggest challenge for Marsden and the team is finding enough vehicles for our key customers when they want them.”
Clearly there appears to be plenty of that demand and increasing scope for growth and the company already has 100 vehicles on order for delivery this year with the same again lined up for 2023, which suggests the runway is extensive.
The company has also attracted some strong and impressive Institutional support on coming to market that includes familiar and respected names such as BGF, Canaccord and Killik.
The next update from the company should come at the end of February or early March and will no doubt be eagerly awaited by investors in what is an interesting and potentially exciting story.