edel AG (DE:EDLG) is unusual in combing extensive entertainment content (owned and/or licensed) with the ability to manufacture physical assets and distribute both physical and digital formats. The resurgence of demand for vinyl has boosted its recent manufacturing earnings, while the breadth and diversity of the overall offering provides considerable portfolio benefits. The group is majority family-owned, with limited market liquidity. This partially explains the modest rating, at a discount to global entertainment content and publishing companies and carrying an attractive yield.
Full service model
Edel’s operations cover a wide range of formats and content. By investing in its systems and production facilities and avoiding becoming over-reliant on any one of the global music industry behemoths, it has been able to build a strong business. It services and supplies many different aspects of the consumer entertainment sector, both in physical formats and in its digital offering, which builds in a further level of resilience to the inevitable shifts in its markets. Although best known for its music, Edel is also a prominent book publisher (with high-quality, in-house production) and has film and family entertainment activities that allow it to leverage its marketing and distribution expertise.
Music back in growth
The music market in Germany had trended down, halving over the 15 years to 2015 by value. It has since reversed the pattern, moving back into growth. Physical product still represented over 60% of the market in 2016 and this remains an important area for Edel. In terms of scalability, digital has inherent attractions and the group has built an enviable portfolio of digital assets, most notably in heritage rock acts, such as Deep Purple and Status Quo.
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