One of my favourite small cap companies, Beyond International (ASX: BYI) has announced a joint venture with Seven Network, owned by Seven West Media (ASX: SWM). Beyond Productions will join forces with Seven to create new programs for the North American market.The JV will be called 7Beyond and is based in Los Angeles.
Seven currently produces more than 700 hours of content per year, and has consistently produced better ratings than the other free-to-air networks, the Nine Entertainment Company and Ten Network Holdings (ASX: TEN).
Beyond International currently has four business segments:
Mea Culpa: In the past, I have had concerns that the company’s foray into digital marketing represented a loss of focus on the most profitable activities. Not for the first time, I was overly pessimistic.
7Beyond is a combination of two TV production companies that excel in reality television (think Mythbusters, Selling Houses Australia, Border Patrol and My Kitchen Rules). The content will be co-produced, with profits shared, but it will be distributed in the US Beyond Distribution. Beyond has refocused on its core competencies, and I have made a fool of myself. One doesn't need a crystal ball to back experienced and honest management with a substantial stake in the company. This is one of the main criteria I look for, and I'm aghast at myself for being overly concerned with the Digital Media side project.
Beyond International has achieved an average ROI of well over 15% since 2005, and has never dropped below 10%. At $2 it trades at a PE of about 13. However, now that 7Beyond is in the works, it seems highly likely that profits will grow over the coming years. As well as a share of the profits of production, the additional content will strengthen Beyond Distribution, adding to revenues but also expanding the company's offerings to customers. This may well mean that content licensees pay more attention to the Beyond Distribution network.
Mikael Borglund and the team qualify as honest and competent management. Borglund has been selling shares on market recently, but he retains a major holding. In comparison, the chairman, Ian Ingram has continued to make large on-market purchases.
I wrote this article for the Motley Fool a few days ago when shares in Beyond were trading at about $1.80. I did so because they pay me, which I appreciate. Now shares are above $2. I believe that they still represent good value, although I generally don't think share purchases should be rushed. If you would like to be notified when I write an article for them that is relevant to a company you follow, please let me know.
I'm working on a new valuation of Beyond International shares, and will update this article immediately before I send the next newsletter. Suffice it to say (for now), I think history has shown that I was previously undervaluing this company.
The Author has no financial interest in Beyond International. Nothing on this website is advice, ever. This post is for entertainment (and for my own reference!)
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