Byron Capital analyst Rob Goff raises target on DHX Media to $1.95

With the acquisition of Cookie Jar Entertainment, Halifax-based DHX Media instantly became the largest supplier of children’s programming to Netflix. On Monday, DHX Media (TSX:DHX) announced it would acquire, for approximately $111 million, Toronto-based Cookie Jar Entertainment, a deal that would add $56.7-million to DHX’s topline and create the world’s largest catalogue of children’s entertainment.

The market liked the deal; shares of DHX climbed nearly 24% Monday as more than 3.3-million shares changed hands.

Byron Capital analyst Rob Goff says the move is a strategic, financial game changer. He says the added library scale of the combined entity is now “significantly empowered to drive higher growth, higher margin digital and merchandising and licencing (M&L) revenues”. In a research update to clients Tuesday, Goff maintained his BUY rating and increased his price target to $1.95, from his previous target of $1.65.

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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.

Toronto-based Cookie Jar, formerly know as Cinar, was founded in 1976 and owns titles such as Caillou, Inspector Gadget, Kung Fu Dino Posse and Johnny Test.

Goff says the price DHX is paying for Cookie Jar is reasonable, pointing to the $155-million DreamWorks paid to acquire Classic Media, a move that added 7200 hours of entertainment to its library. He says that while a straight comparison of the 6000 hours DHX acquired from Cookie Jar might be an oversimplified analysis, the contention by management that the library would cost $1.5-billion reproduce means growth through acquisition makes sense in this case.

At press time, shares of DHX Media were up .7% to $1.43.

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