Doozer Deal: Byron Capital’s Rob Goff raises target on DHX Media to $1.65

DHX Media today announced it has partnered with the Jim Henson Company to produce a new children’s series entitled The Doozers, based on characters that were introduced in the 1980’s through the worldwide hit show Fraggle Rock. The production will begin this month at DHX’s animation studio in Halifax. Halifax-based DHX Media (TSX:DHX) today announced it has partnered with the Jim Henson Company to produce a new children’s series entitled The Doozers. The production will begin this month at DHX’s animation studio.

The Doozers are characters introduced in the 1980’s through the worldwide hit show Fraggle Rock.

Byron Capital’s Rob Goff says that while no broadcast agreements have been announced, he’s confident they are on the way. He says this announcement is just the latest in a string of recent deals that demonstrate DHX’s “favourable position within the space”. In a research update to clients today, Goff maintained his BUY rating on DHX and raised his one year target to $1.65 from his previous $1.50.

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Founded in 2006, DHX Media 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. On May 14th, DHX reported its Q3, 2012 results. Revenue was up 35% to $16.6-million from $12.3-million in the same period in 2011.

Goff says his modest price target increase is “largely as a result of a narrowing of the equity discount”. He says that with the recent run in the company’s share price, he felt it was warranted to narrow the discount he had applied to his one year out discounted cash flow valuation, which had been at 15%, to 7%. Goff says his 2012 and 2013 EV/EBITDA targets of 7.6x and 6.2x are still well below recent takeout activity on DHX’s Canadian media peers, which have happened at 8x – 12x EV/EBITDA.

Shares of DHX Media closed today up 3.4% to $1.22.

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