The CTS Eventim share has long been one of the absolute outperformers. Anyone who placed shares of the ticketing and event specialist with a value of EUR 1,000 in their custody account in January 2003 was still pleased at the beginning of the year about price gains and dividends totaling EUR 95,715, which corresponded to a performance of over 9,600 percent!
Then Corona came and security requirements including lockdown brought the success story to a (temporary?) End. The cancellation of almost all live events forced the company to cancel the dividend. The share price collapsed at times by over 50 percent. And the CTS Eventim share is still trading over 30 percent below its old high.
|CTS Eventim share|
|Market capitalization||€ 3.6 billion|
|Dividend yield||0% (deleted)|
|Stability dividend||0.88 of max. 1.0|
|Increase in dividends||negative|
In this stock analysis, we check whether the CTS Eventim stock is worth buying at the current price level. We not only look at the current situation, but also examine the chances for the time after Corona. Will the stock see old highs again?
The business model: This is how CTC Eventim earns money
CTS Eventim divides its business into the two segments “Ticketing” and “Live Entertainment”:
With the ticketing segment, CTS Eventim has come after Live Nation Entertainment in terms of sales developed into the world’s second largest processor of ticket sales. In addition to selling tickets for its own events, the company also handles ticket sales for other organizers and their events (e.g. for the Handball World Cup). In addition, CTS Eventim licenses its own ticketing software to other ticket sellers. CTS Eventim sells around 250 million tickets per year via its systems. With this volume, CTS Eventim sells 60-70 percent of all tickets in Germany, making it the clear market leader. As tickets are increasingly being sold digitally, CTS Eventim achieved a high gross margin in this segment, which was 60.5 percent in 2019.
The Live Entertainment segment is responsible for two thirds of sales. In this segment, CTS Eventim bundles its large live events and has become the world’s third largest and largest organizer of such events in Europe. The company organizes and operates the festivals “Rock am Ring”, “Rock im Park”, “Hurricane”, “Southside” and “Lucca Summer”, among others. It also operates several of the most famous event locations in Europe, for example the LANXESS Arena in Cologne, the Waldbühne in Berlin and the EVENTIM Apollo in London.
In addition, CTS Eventim organizes individual concerts or entire tours for artists such as the Rolling Stones, Ed Sheeran and Phil Collins. Even if these events generate high sales, they are not very profitable, which is why the gross margin here is in the low double-digit range and was only 11.1 percent in 2019.
The failed toll experiment
CTS Eventim almost added a lucrative business area to its business model. In 2018, CTS Eventim and the Austrian toll system provider Kapsch Traffic Com were awarded the contract to set up a car toll system in Germany. With a term of 12 years and an order volume of EUR 2 billion, the contract would have put a lot of money into the company’s coffers every year and put the business on an even broader basis. In June 2019, however, the European Court of Justice declared the toll to be illegal, whereupon the German Ministry of Transport terminated the contracts with CTS Eventim and Kapsch.
For CTS Eventim and the shareholders, the excursion into new territory could still have been worthwhile. The joint venture between the two companies is making payment claims of around EUR 560 million against the Federal Republic of Germany valid. This sum is said to have been contractually agreed in the event that the toll fails.
CTS Eventim – the secret of success
The success of CTS Eventim consists of more than selling lots of tickets and hosting live events. Because through the close interlinking of both business segments and the purchase of competing ticket sellers and concert organizers, the company has created a quasi-monopoly in Europe, including high market entry barriers. Until the Federal Cartel Office intervened (see below on the risks), CTS Eventim enforced against other organizers who wanted to use the CTS Eventim ticket system that they had to exclusively sell all tickets via the CTS Eventim ticketing system. This ensured that other ticket sellers either bleed out financially or were unable to gain a foothold in the market. In addition, there are close partnerships between event organizers and ticket vendors in the ticket business, so that a new competitor in the ticket market for popular events can hardly find ticket contingents. Today, many event organizers either belong to CTS Eventim or are tied to the company through exclusive connections. CTS Eventim has become a platform that benefits from the same network effects as, for example, Facebook benefits.
Is the CTS Eventim share a buy? Another assessment of this in this video.
Risks of the business model
Despite its dominant market position, CTS Eventim’s business model is exposed to several risks. In addition to strong competition from the US competitor Live Nation Entertainment, which operates the ticketmaster.de platform, for example, it is primarily Amazonwhose market entry hovered over CTS Eventim like a sword of Damocles for a long time. When Amazon chose Great Britain as a test market for entry into online ticketing in 2016, it really shook the market up. After two unsuccessful years However, the online giant decided to end the experiment. In 2018, Amazon postponed its planned market entry in the USA.
From the failure of Amazon you will recognize the high barriers to market entry and the moat that the big organizers have built for themselves with their own ticket sales. Even Amazon, the nightmare of entire industries, was unable to gain any significant market share. It is also noteworthy that the operating margins of the large competitor Live Nation Entertainment are significantly lower than those of CTS Eventim.
In addition, CTS Eventim has several feuds with the Federal Cartel Office. For example, Germany’s highest competition authority prohibited the planned takeover of the now insolvent competitor Four Artists. In addition, the Federal Cartel Office banned the management of CTS Eventimto require other organizers to use the CTS Eventim ticketing software exclusively for all tickets. Although this shows the downside of the outstanding market position, the intervention of the Federal Cartel Office confirms the deep moat that CTS Eventim has dug. A positive thing for CTS Eventim is the express permission from the Federal Cartel Office regarding the exclusive use of the ticket system by other organizers if this does not exceed 80 percent of the total ticket quota. The business model in the ticketing segment is therefore not threatened.
Special events such as the corona pandemic or terrorist attacks pose a threat to the entire industry. Necessary security measures, for example by limiting the number of spectators or even the complete cancellation of planned events, put a strain on sales and profits in this case.
The sales development of CTS Eventim
CTS Eventim has shone in the past through steady growth. The company increased sales from EUR 224.38 million in 2003 to over EUR 1.4 billion in 2019. However, the consequences of the corona pandemic will set sales back by almost 10 years in 2020 and shrink to EUR 403 million .
However, once the pandemic is over, sales should pick up again. However, reaching pre-crisis levels could take until 2023 or even 2024. However, I doubt that the pandemic will fundamentally change people’s attitudes towards events. Because the need for shared experience is as old as humanity itself, which is why there should continue to be events such as concerts, sporting events and plays. In a survey carried out by CTS Eventim, 75 percent of the Respondents to attend live events again within four months after the corona restrictions were removed. 90 percent said they missed live entertainment. From this perspective, increasing sales again appear to be only a question of time – assuming the corresponding stamina.
That’s how profitable CTS Eventim is
In addition to sales growth, rising profits have been a constant in recent years. Starting from EUR 0.05 earnings per share in 2003, CTS Eventim was able to increase profit to EUR 1.38 in 2019. 2020 will be the first year of losses since the IPO at EUR -0.56. Here, too, it will probably take several years for CTS Eventim to build on old record profits.
The increased profits of the last few years shouldn’t hide the fact that the company had to struggle with margin problems from time to time. Recently, the margins fell mainly due to higher personnel costs and investments into the further digitization of the ticketing segment. In addition, the margin in the Live Entertainment segment depends on high-margin events. While the fluctuating margins were never dramatic, long-term investors should always keep an eye on them regardless of the pandemic.
What happened to the CTS Eventim dividend?
In normal years, CTS Eventim distributes 50 percent of the profits to shareholders. The company has been paying a dividend since 2006 and increased it from EUR 0.09 to EUR 0.62 in 2019. However, the slump in profits in the wake of the corona pandemic this year forced CTS Eventim to suspend the dividend. So nothing of the profit already made in 2019 was distributed to shareholders, which increases the likelihood that dividends will soon be paid again in the event of a recovery. However, I think a quick increase in the dividend to the pre-crisis level is unlikely, because the security measures and restrictions required for live events will probably extend well into 2021. I also suspect that the founder and CEO, Klaus-Peter Schulenberg, prefers to hold the money together when in doubt than to distribute a dividend in uncertain times. Such responsible management would be typical for owner-managed companies.
Is the CTS Eventim share fairly valued?
Like you in Dynamic Equity Valuation of the stock finder, the CTS Eventim share appears overvalued despite its discount. This has to do with the fact that profits and cash flows are on the ground as a result of the pandemic and are expected to recover rather hesitantly in the next few years. The fair value of EUR 25 per share calculated for the end of 2022 on the basis of adjusted earnings shows that it can take a few years for the increased earnings to justify the current share price. I still interpret the share price to mean that the market, like the analysts, assumes a full recovery from 2023 and is already pricing in this fact today.
Nonetheless, the question is whether CTS Eventim will financially survive a second Corona season like the first. Fortunately, the company has EUR 800 million in cash. In addition, expenses decrease if no or fewer events have to be planned and prepared. I therefore do not see an existential danger even in the event of a second Corona year.
Conclusion: CTS Eventim share – Corona victim with appeal
It will probably take several years for CTS Eventim to recover economically from the corona shock. Nevertheless, the market has already partially priced in the recovery in the share price. The return potential is therefore limited. On the other hand, the CTS Eventim share is still trading well below the old highs and the moat described above against the competition is still intact, maybe even deeper than ever. Because of the risks identified by Corona, potential competitors will think twice about competing with CTS Eventim. For those who can cope with the pressure of short and medium-term uncertainty as an investor, the CTS Eventim share may be a buy. By diversifying through different stocks, you can also spread the risk of investing in CTS Eventim with the help of a stock savings plan. In this case, you will gradually build up your position and thus benefit from courses that have fallen.
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