ATM Grupa: Buy Rating and Valuation Update
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VALUATION AND SUMMARY
We are keeping our Buy recommendation for ATM Grupa's shares, while lowering our valuation to PLN 4.51/share (which is 37% above the current market price). We are not changing our stance and approach the current year's results with caution. We draw attention to the low contracting level of the tv and film production segment and the challenging earnings base in the fixed asset management segment. Therefore, we are preparing for the scenario that the company is likely to show negative y/y earnings growth for the coming quarters. At the same time, we are counting on a perceptible improvement in results from audiovisual activities in the 2024-2025 timeframe. Our current simulation indicates that EBITDA from the two segments related to audiovisual activities in 2023 will be 13.8% lower y/y, while in 2024 and 2025 it will enter the area of positive dynamics: +7.1% and +13.7% y/y, respectively.
Although ATM Group's earnings momentum does not encourage optimism, we emphasize the current low market valuation. We also appreciate the fact that the company consistently directs a generous stream of dividends to shareholders. Finally, we look with increasing optimism at the potential that Lumina Park is building. We assess that this entity may present a significant element in the future valuation of assets in ATM Grupa's investment portfolio in the coming years. We also note that although the process of selling the Boombit stake currently seems vague at current market prices, ATM Grupa is receiving a stream of dividends from Boombit.
The valuation presented is based on the SOTP method. We have prepared a DCF and multiplier valuation of the TV and film production and fixed asset management segments. In addition, we include an estimate of the value of net assets related to the real estate business. We also add to the final value the market value of the stake in the Boombit entity.
Our approach to the valuation of assets held in associates and joint ventures is similar to the previous approach. As we indicated, we value Boombit's assets in accordance with current market value. On the other hand, we continue to treat the assets represented by Lumina, Black Photon and ATM Virtual as "start-up" projects at this stage and value them collectively at the level of the value of the loans granted to them by ATM Grupa - this is included in net debt.
In future updates, we do not rule out changing our approach to Lumina. Indeed, we note that Lumina wants to open additional illumination parks in 2023 (there will likely be a total of 10 parks in the 2023/2024 holiday season). This is a business that surprised us in the upside in 2022 (strong Q4'22 results), and we note that for the full year 2022 Lumina reported a net income of PLN 7.5 million (in 2021 it was PLN 2.15 million).
