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First Artist – Results & Change of Name: Buy at 30.5p with target price unchanged at 65p

First Artist has announced today that in order to better reflect the restructured operational focus of the streamlined group, it intends to change it’s name to Pivot Entertainment on 2nd June. The news accompanied the release of the company’s final results for the year ended 30th November 2010 which were – as expected – dreadful but represent the last year with the former management team in charge. The company provided an upbeat assessment of the changes made since November 30th and our forecasts are not changed on the back of the announcement. At 30.5p our stance remains buy with a target price of 65p.

The headline results for the period ended 30th November 2010 came in roughly in line with our expectations with revenue at £73.8 million (down from £90.6 million). However, weak trading, largely in businesses now disposed of, meant that underlying EBITDA fell from £3.5 million to £550,000 while a combination of exceptional (non cash) charges and almost £2 million of interest costs meant that pre-tax losses increased from £1.4 million to £5.539 million. Net debt at the period end was recorded at £14.67 million and – as per our note of 27th April 2011 – as at 30th November 2010 the company was in breach of its banking covenants, which meant that all banking liabilities were technically classified as payable immediately/upon request.

Post period end First Artist has undergone significant changes to management with the entry of Jeremy Barbera and David Stoller, and more recently the exit of former CEO Jon Smith. The company has also disposed of all of its non-core operations leaving it focussed solely on the theatre businesses Dewynters and Spot & Co and has raised more than £4 million in fresh equity at 20p and 23p so not only reducing its overall debt burden but also prompting its banks to slash the rate of interest charged. Interest costs will fall by around £1 million on an annualised basis as a result. We also believe that the company has materially reduced its head office costs, not least through the departure of Jon Smith and the closing of its head office in Tenterden Street in the West End.

We believe that at this stage the importance of the post period end reshaping is yet to be priced in by the market and draw confidence from the fact that the new management team have delivered, met every expectation and kept each promise that has been made. With all major non-core disposals having been completed and a materially cheaper debt facility in place we continue to rate the stock as a Buy with a target price of 65p derived from a 2012 EV/EBITDA multiple of 11 times.

Financial records and forecasts

**pre exceptional items