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Beyond “Beyond 2000”

Those of us over a certain age will remember the factual television series Beyond 2000. Showcasing the weird and fantastical, the program gave us a glimpse into the future. While Beyond 2000 is no longer in production, the company behind that series, Beyond International (ASX: BYI) is still in business.

Beyond produces television programs, feature films and home entertainment locally, as well as distributing international films and television programs. A smaller, declining, division also distributes DVDs in Australia and New Zealand, while a recently started business operates in digital marketing, sales, search engine optimisation and online media sales.

Reality TV – before Big Brother

The company has built up an extensive television program catalogue of more than 5,000 hours, with its major sales going to Europe. Its shows include Mythbusters, Hot Property, Selling Houses Australia, Rush TV and the Australia drama series Stingers.

Most of its shows are factual series, sporting events, documentaries and children’s programs due to the consistent demand from broadcasters worldwide. It also means shows can be run for several years as repeat seasons since they ‘age’ better than other shows such as reality TV or news.

Around 50% of its revenues were either in US dollars or Euro in 2012, which means the falling Australian dollar is good news for the company. Beyond also receives commissions from US broadcasters to produce shows exclusively for their channels.

Almost two-thirds of revenue is generated from in-house produced shows, and it exploits its film library through digital downloads, mainly through Apple’s iTunes and Telstra’s BigPond movies. But the company is looking to distribute its content through all local digital platforms.

Strong demand

With free-to-air broadcasters demanding content for their new digital channels, and additional channels on pay TV network Foxtel, Beyond has increased its operating profit from $4 million in 2004 to $10.3 million in 2012. Likewise, net profit has climbed from $2 million in 2004 to $8.5 million in 2012, with 66% growth in 2011 alone.

In the most recently reported six months, Beyond saw net profit rise 17%, with revenues climbing 13% to $50 million. The company’s full-year forecast is for earnings to rise by 10% to 15% in 2013 over the previous year, despite the tough advertising market, and weak economic conditions. The rising profits are benefitting the company’s balance sheet too, with no debt and $8.2 million in cash at its last report date. Management have stated that they want to build up a cash buffer to utilise in working capital, potential acquisitions and dividend payments.

The one fly in the ointment is the company’s Home Entertainment (BHE) division. It distributes physical DVDs, such as comedy, sports events like NRL State of Origin, children’s shows, documentaries and factual series. With demand for physical DVDs falling, the company has been forced to cut costs and sack staff as top line revenues slide and margins are crushed. It’s likely that this division will go the way of the dinosaurs in the not too distant future.

D for digital diversity

In an effort to diversify its earnings further, Beyond setup its BeyondD digital marketing division in early 2012. Its early days so far for this division, but it still managed to bring in $6 million of revenues and generate a profit, albeit small, in 2012.

Management hold substantial stakes in the company, with senior executives owning just over one-third of the company. While it’s nice for investors to know that management will be shareholder focused, it also means that Beyond is fairly illiquid, with very few shares changing hands on a daily basis. Investors will need to bear that in mind when looking to purchase shares in the company.

Foolish takeaway

They say ‘content is king’, and Beyond is perfectly situated to benefit. The structural shift to digital broadcasting means more digital channels, and broadcasters will require more content. As the producer of shows and series that age well, and with a substantial library of television shows and movies which will only grow, Beyond could be about to embark on several years of substantial growth. Currently trading on a P/E ratio of just over 10, and paying a 4% dividend yield (unfranked), Beyond is one company to add to your watchlist.

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Motley Fool analyst Mike King does not own shares in any company mentioned.

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