Northland Capital's Ralph Garcea raises target on DHX Media

Like Yo Gabba Gabba!, DHX Media's hit children's program Rastamouse illustrates the value the company can generate in licensing and merchandising agreements when a hit materializes from its considerable holdings.

On May 14th, DHX Media (TSX:DHX) reported its Q3, 2012 results. Revenue was up 35% to $16.6-million from $12.3-million in the same period last year. Earnings were up too; the company’s net income of $546,000 was an increase of 130% over last year’s $237,000.

Northland Capital Partners analyst Ralph Garcea believes that while DHX has become more attractive because it has consistently increased the size of its catalogue, the value proposition of the company is amplified by marketing and licensing agreements and the repurposing of existing content. On Wednesday, in an update to clients, Garcea resumed coverage of DHX with a with a Sector Outperform rating and a $2 price target, a significant increase from his prior target of $1.50.

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DHX Media is 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, including Animal Mechanicals, Rastamouse, Angela Anaconda and the hit Yo Gabba Gabba! 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.

While most investors, even those without small children, are familiar with Yo Gabba Gabba, Garcea says DHX may have another outsized hit on its hands with Rastamouse. Rastamouse, an animated stop motion program about a crime busting mouse reggae band called Da Easy Crew, airs on BBC2 and has received widespread praise.

Like Yo Gabba Gabba, Garcea says Rastamouse illustrates the value DHX can generate when a hit materializes from its considerable holdings. In this quarter, the company realized its first licensing revenue from Rastamouse of $270K, despite having only launched on four of sixteen initiatives. Yo Gabba Gabba! merchandising products are expected to hit the shelves next year.

Shares of DHX Media closed today up 4.4% to $.97 cents.