Ralph Garcea initiates coverage of DHX Media with a Strong Buy, $5 target

DHX Media owns more than 10,000 half hours of children’s entertainment content including brands such as Animal Mechanicals. With new distribution channels emerging, DHX Media (TSX:DHX) is seeing a broad increase in licensing opportunities for its growing catalogue and its seasoned management team is uniquely qualified to monetize and grow the Halifax-based company’s already considerable assets, says Global Maxfin Capital analyst Ralph Garcea.

In a research update to clients yesterday, Garcea initiated coverage of DHX Media with a STRONG BUY rating and one year price target of $5, implying a 31% return over yesterday’s closing price. He rates the risk profile as high due to the seasonality of deliverables and the risks associated with the acquisition and distribution of content.

Garcea says DHX has long term catalysts in the potential for high-margin merchandising and licensing revenue from digital assets because of the growth in Over The Top players such as Netflix and Hulu.

The Global Maxfin analyst says DHX is an attractive investment opportunity because it has overall gross margins of 50%+ and EBITDA margins in the high 20% range. The company’s business model, he notes, leverages funding and incentives from the National Film Board of Canada, Telefilm Canada, Canada Media Fund, and federal tax benefits.

After a string of recent acquisitions, DHX Media owns more than 10,000 half hours of children’s entertainment content including brands such as Caillou, Busytown Mysteries, Inspector Gadget, Johnny Test, Animal Mechanicals, Kid vs. Kat, Super WHY!, Yo Gabba Gabba!, Teletubbies, and In the Night Garden.

The company has made distribution deals with heavyweights like Netflix and PBS Kids.

Shares of DHX Media closed today up 2.9% to $3.57.

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