Below the radar: stage is set for blockbuster growth at film location services business Facilities by ADF

Film location services business Facilities by ADF (ADF)Follow | ADF probably couldn’t have chosen a worse time to come to market – listing at the start of 2022, markets were soon rocked by Russia’s invasion of Ukraine and the ensuing inflationary crisis, which scared many small cap investors out of the market and saw its shares slide from the 50p IPO price.

But like many small companies, its shares have enjoyed a steady recovery since October and strong results released today suggest the stage is set for further recovery as the UK’s film industry goes from strength to strength.

ADF provides the vehicles used to provide the complete infrastructure on film location shoots, including artists trailers, make up and costume rigs, mobile production offices, food trucks and toilets – aesthetically rebranded as “Honeywagons.” 

The company raised £15m through its IPO, of which £9.2m has already been invested in expanding its revenue-generating fleet, adding 136 units to take its total to 632 by the year end, leaving it perfectly positioned to tap into the streaming content boom which shows no signs of abating.

According to figures from the British Film Institute, £6.27bn was spend on film and high-end television production in 2022, the highest level ever reported and £1.83bn ahead of the pandemic in 2019. The BFI estimates that spending will keep rising to hit as much as £7.6bn by 2025, which would mean an additional 20,770 crew will be required on productions – and, therefore, a lot of support vehicles. 

The UK’s reputation as a hotbed of creative talent is one reason for the surge in investment into UK film, but overseas producers have also been keen to take advantage of the weak pound and tax breaks offered by the government in support of what it has identified as a key industry. That’s also encouraging a huge expansion of studio space – including Pioneer Studios, the newest and largest facility in Scotland where ADF has just opened an office - which is set to double by 2025 as developers take advantage of tax reliefs on capital expenditure. 

That tax break – 100% on capital expenditure - is also proving good news for ADF, which meant almost all of its tax was offset in 2022 and meant it beat broker Cenkos’s profit after tax forecast by a third, delivering £4.6m. Similarly, the broker has reduced its forecast 2023 tax charge from £1m to £0.5m, which means a 20% upgrade to 2023 profit after tax, to £6m. 

It’s not just accounting tailwinds that’s driving the business forward though – as well as acquiring Location One, the UK's largest integrated TV and film location service and equipment hire company, it almost doubled the number of productions it supported in 2022 to 76, driving 8% organic revenue growth to £31.4m. 

The 2022 highlights reel includes The Crown season 5, Slow Horses, Everything I know about Love, The Sandman, Sex Education and Happy Valley, generating an average of £386k per production. Importantly, that figure is set to rise in 2023 as the orderbook shifts from a higher number of smaller, more geographically spread productions to larger, more tightly clustered productions. 

Revenues are expected to hit £47.6m this year, while investment in its manufacturing and logistics facilities offers capacity to grow that to £100m. At 60p, the shares trade on less than 8 times Cenkos’s updated forecasts and offer a 3.9% yield, which seems remarkably cheap for a highly specialised business with a firm foothold in one of the UK’s most exciting industries. 

Investors might want to think about rolling out the red carpet for this one. Follow | ADF