Byron’s Goff initiates coverage of DHX Media with $1.50 Target

Yo Gabba Gabba! Animal Mechanicals. Kid vs Kat. Angela Anaconda.

If none of these titles ring a bell, you almost certainly do not have young children. If they do, you have already been introduced to DHX Media (TSX:DHX), a Halifax-based based company that is the co-producer of more than forty original television series and boasts a library of over 2,525 half-hours of film and television.

Byron Capital telecom and media analyst Rob Goff says DHX is particularly well positioned in a Netflix-era world where the consumption of content is more likely to happen online. While the company, he says, is conservatively run and generates plenty of free cash flow, it is also in the position in which one of its many properties could become the next “Dora the Explorer” type mega hit. In a Research Report to Clients today, Goff initiated coverage of DHX Media with a BUY rating and a $1.50 target price.

With TV shows like “This Hour Has 22 Minutes” and movies such as “Shake Hands with the Devil”, DHX does more than children’s broadcasting, but the company has quietly become a leader in kids TV. DHX has signed more than 1,200 license deals with over 150 children’s networks worldwide, including the BBC, Cartoon Network, PBS, The Disney Channel and Nickelodeon.

Goff points out that due to factors such as Canadian government incentives, pre-sales and broadcast contracts, DHX has a very low risk profile because it is a very low cost producer of content. But this lack of risk, perhaps counter-intuitively, does nothing to hamper the company’s potential returns. While DHX can make a nice living hitting singles, Goff says a major home run “could result in a $3.59/sh market price impact on DHX shares.”

Shares of DHX Media closed today down 1.1% to $.91 cents.