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Evestar's Statement of Profit or Loss
While revenues have grown steadily since 2012, that growth is slowing. In 2016, Evestar faces a scenario where cost of sales are growing at a far faster rate (22% increase between 2015 and 2016) than revenues (just 8% growth during the same year) and this cuts gross profit growth between 2015 and 2016 to just 1%. Clearly, Evestar's shows are costing more to make and I suspect "The Cavern" has something to do with that as we're told in the pre-seen of increasing costs relating to that particular programme.
Evestar's net profit for the year has declined 6% on the previous year and the big jumps in administrative expenses over the last two years have a lot to do with that. Over the five years we are provided with, administrative expenses have grown a whopping 190%. It's also noteworthy that advertising and promotion expenses over the same five year period are flat, no doubt due to the fact that the tabloid newspapers write so much about the stars of Evestar's shows that it would be pointless to actually pay for advertising.
It's also interesting to note that 2015 doesn't like an especially stellar year compared to the previous years. This is interesting because Evestar tells the investment community in the pre-seen that 2016 are not in fact, as disappointing as they first appear and that its just a case of 2015 having been so good by comparison. That is not true. 2015 revenue growth and profit growth were in line with previous years.
Overall, Evestar is struggling with spiraling costs and it needs to keep them in check if it is to continue enjoying the profitability of prior years. It may consider going into lower-end reality TV productions to save on costs.
Evestar's Statement of Financial Position
It's disappointing and harmful to Evestar's future revenue potential that total assets have increased just 3% in five years. Evestar is simply not investing enough in its asset base. Intangibles in the form of programme development is down 13% over the five years. If Evestar is cutting back on new ideas each year it's not going to turn out the new shows that will guarantee its future. It seems that they are resting on their laurels somewhat and this is evidenced by the fact that they have had no new shows in the last three years.
The fact that cash is down 300% over the five year period is very worrying too and in 2016 Evestar's current ratio (current assets/current liabilities) stands at just 1.2, down from 2.9 in 2012. I believe that Evestar is using its cash to fund the production of its programmes. They have not issued any new equity in the last five years, their profits are almost entirely going towards dividend payments to shareholders, and they cannot take on any more debt as their gearing (long-term debt/equity) stands at a ridiculously high 144%. So, they're eating into their cash to produce their programmes.
I believe it would be wise for Evestar to issue new shares and to start re-investing some of those profits into the company rather than just handing them over to shareholders.
Bonchant's Statement of Profit or Loss
Like Evestar, Bonchant has enjoyed revenue growth between 2015 and 2016, although at a higher rate (11% versus the 8% growth achieved by Evestar). Also like Evestar, Bonchant has seen significant growth of cost of sales with an increase of 26% in the last year. However, Bonchant has kept its remaining expenses under control with administrative expenses and advertising and promotion expenses flat for the year.
This means that Bonchant has increased its net profit by 2% in the past year - not significant, but moving in the right direction at least.
Bonchant's Statement of Financial Position
Interestingly, Bonchant's intangibles figure for programme development is almost twice as high as for Evestar. This is a company with more ideas in the pipeline. It has seven programmes compared to Evestar's four and is also more diversified than Evestar with a greater variety of programme types.
Bonchant's cash position is also altogether healthier than Evestar's. Its current ratio (current assets/current liabilities) of 1.9 means there are no liquidity issues for the company. Furthermore, Bonchant's gearing (long-term debt/equity) stands at 32% meaning its on a surer financial footing than its rival.
When we compare the two companies we see that both work from a similar asset base with capital employed (equity + non-current liabilities) standing at T$424 million for Evestar and T$411 million for Bonchant. Interestingly, Evestar's assets work harder than Bonchant's with these assets generating higher revenues and profits for Evestar than for Bonchant. Whereas Bonchant's Return on Capital Employed (PBIT/capital employed) is 19% in 2016, Evestar's is 27%.
A number of other factors stand in Bonchant's favour however. Bonchant is a more liquid and financially more sustainable and less risky company. Evestar is far too indebted and is not investing enough in new ideas to reverse recent trends of declining revenue growth rates and profitability.
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