• Mark Watson-Mitchell

Zinc Media Group (LON:ZIN) – scaling up will amass increasing profits

It does not matter that this company is loss-making, nor does it matter that its shares have doubled in price in the last year – I am taking the view that profits are not far away and that its shares could double within a couple of years.


Bob Geldof and Ten Alps


Some readers may well remember the old Ten Alps multimedia production group co-founded by Bob Geldof. Having been loss-making for the previous four years, in 2016 the group was refinanced and restructured and then acquired Reef TV, that was before Geldof stood away from the group.


The aim was one of growing as a factual and documentary programme maker, while developing a video-led corporate communications and branded content business. The expanded group changed its name to Zinc Media in early 2016.


Rebirth and regeneration


Mark Browning, the CEO, moved into Zinc Media in April 2019, since when he has been engineering its reorganisation with the view to push up revenues and reduce operating costs, thereby driving the group into sustained profitability.


Browning has real experience in this part of the UK media sector. Formerly he was the MD of ITN Productions, also previously as a Director of Programmes at Heart 106.2 and as a Director at IRN, the news provider.


Covid-19 did not help to speed up the regeneration process, however some light has started to shine through. It became apparent that the latter half of last year really began to show progress as restrictions were lifted.


Coming into 2022 the company has revealed revenue diversification and lots of new markets at which to aim. That will surely spur on the whole scalability of the business.


The Business


The group is a respected premium content provider. It is an award-winning, critically acclaimed television and content creation group.


It operates through two main divisions -Television Production and Zinc Communicate.


The Television side produces popular, impactful and innovative programmes across a wide range of factual genres for UK and international channels. It has seven production companies that are led by trusted producers, operating under familiar and respected labels.


The Communication division creates cross platform content for brands, businesses, associations and partners to develop and build value through positive brand impact and engagement with its audience. Its content creation services include graphics and animation, web design and hosting, video production, advertising sales and distribution.


The UK sector for content is worth about £5bn a year, covering sports, news and factual programmes.


Of that total about £1bn a year is spent on factual programming, of which part Zinc identifies the aggregated market that its offer is aimed at as being around an £850m per annum spend.


Its Clients


The group’s television broadcasting clients include BBC One, BBC Two and BBC Four, ITV, Channel Four, Sky, UKTV, Discovery, History, PBS, and National Geographic amongst the growing list.


Its programmes include Inside the Zoo, Bargain Loving Brits in The Sun, The Station: Trouble on the Tracks, Ian Wright: Home Truths, 50 Years of Mr Men with Matt Lucas, 9/11: Life Under Attack, The Sound of Music TV, The Curious Life and Death of…, Thatcher vs The Miners, Britain’s Lost Masterpieces, Emergency Helicopter Medics, Being Gail Porter, Special Ops: Crime Squad UK, and Beechgrove – there are scores more.


The group has a growing Corporate communications division, its clients include such top names as Red Bull, Qinetiq, the RNLI, RIBA, AegonUK, Nasdaq, Redlington, Lego, Adobe, and Nationwide.


The Equity


There are 16,200,919 shares in issue.


Larger holders include Herald Investment Management (39.5%), Canaccord Genuity Wealth (9.77%), Premier Miton Fund Managers (9.33%), Edale Capital (6.76%), Ruffer Investment Management (4.73%), John Booth and The John Booth Charitable Foundation (4.07%), Artemis Investment Management (3.22%), Quilter Cheviot (2.60%), Smith & Williamson Investment Management (1.65%), and Jarvis Investment Management (1.39%).


Recent Results


Last Friday morning the group announced its results for the year to end December 2021.


They showed significant progress during that year’s trading, with revenues of £17.5m compared to the 18 months to December 2020 of £30.6m. Losses continued, with EBITDA of £0.6m against £0.8m for 2020 (18 mths).


However, the big turnaround has started to show through, with the second half-year being so much stronger, reporting £10.5m of sales and an EBITDA of £0.5m profit.


At the end of 2021 the group had some £5.6m in net cash, which by 14 April was down to £4.2m.


As Covid-19 hassles reduced it has become evident that advertising spend has increased across the board and so too has the level of new commissioning made by its clients and the sector generally.


I understand that already £13m of new business has been booked for completion in 2022, with another £8m coming through. In total there is around £35m of new business at various stages within the pipeline.


Browning’s Strategy


I spoke with Mark Browning at length upon the results and was certainly impressed with what he had to say about his strategy going forward.


I believe that he has centralised a great amount of the group’s operations and in doing so has cut back on costings and increased group margins going forward.


The company has invested about £1m in new hardware, like cameras and audio equipment, rather than using ‘hired-in’ equipment. It is ‘scaling with technology’.


Of the group’s 175 staff, about 50% of them have been employed within the last twelve months.


He has taken on board some of the sector’s top talents and that is already showing benefits.


My View


The investment basis for this company is its total scalability. As it kicks in more new business its margins will improve dramatically.


I would reckon that a broker’s estimate of £25m in revenues being breakeven is fairly accurate.


If the group sales picked up to £30m it is more than possible that £2m would be the positive EBITDA line.


So, if £35m came through it could generate twice that EBITDA.


A major plus point in going forward is that the group has previously mounted up significant tax losses, against which such profits would look extremely handsome in terms of earnings per share.


The group’s shares have been up to 128p at their best in the last year, they have also been as low as 55p in that period.


Last Friday night they closed at 117.5p, off 4.5p on the day.


In my reckoning I see these shares more than doubling within the next two years as Browning and his team really get their act together.


Zinc Media Group is all about growth and its shares will reflect that potential.


I am feeling very confident that this group’s shares are headed higher and now set an easy Target Price of 148p.


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