7digital Group - Broadening the base
7digital’s interims show good progress in developing its B2B offering, with revenues up by 52% on H117 (including acquisitions). This reflects strong demand from brands for music as an adjunct to other products and services, as a differentiator and in order to improve brand loyalty. With an expanding portfolio of commercial content and the brand relationships, 7digital is well placed to exploit its independence and build a sizeable business. With management reiterating its expectations of the group moving into profit in H218, our revenue and EBTIDA forecasts are unchanged. We expect EBITDA to move ahead strongly in FY19e, given growing revenues on a lower fixed cost base. This puts the shares on a rating well below software peers, currently valued on a P/E of 21.6x.7Digital Group has three divisions: Content, Licensing and Creative. The Content division includes the sales of digital music downloads by Co. direct to consumers, and one off projects from record labels. Licensing is the core of Co.'s business, providing the platform and rights management personnel through which its business-to-business customers can create their own streamed music services, either standalone or bundled into their device or product offering. Co.'s Creative division is engaged in the creation of audio and video programming for broadcasters, receiving commissions from BBC's national radio networks, commercial radio stations and other broadcasters such as Sky Television.
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