Disney, HBO or Netflix may take a run at DHX Media, says Bhangui

DHX Media’s (TSX:DHX) growth isn’t slowing down any time soon, and that makes it an attractive acquisition target for Disney, for its Disney Channel, HBO or Netflix, says Byron Capital analyst Dev Bhangui.

On Monday, Halifax-based DHX reported its fiscal 2013 results. The company earned $1.86-million on revenue of $97.26-million, which was up 34% over the $72.65-million topline the company posted in fiscal 2012.

CEO Michael Donovan pointed to a single aggressive acquisition that tipped the scales for the company.

“Fiscal 2013 was a transformative year for DHX Media thanks to our October, 2012, acquisition of Cookie Jar and the proliferation of new digital distribution customers in our industry, he said. “Our other core areas of proprietary production and licensing also experienced both organic growth and benefits due to the Cookie Jar acquisition.”

Bhangui, noting that DHX is projecting between $103-million to $143-million in revenue for fiscal 2014, says he thinks the company’s own guidance is conservative. He expects the company will grow at a Compound Annual Growth Rate of 20% for the foreseeable future.

At a valuation of 11x his estimate of the company’s 2014 EBITDA, he says DHX is trading at a comparable to its low-growth peers, something that he thinks makes it an extremely attractive acquisition target for Disney, HBO, or Netflix, whom DHX is already the largest supplier of children’s programming to.

The Byron analyst says he has a continuing upward bias towards DHX, particularly in light of the recent acquisition of Ragdoll Worldwide Ltd. from BBC Worldwide, which owned properties such as Teletubbies and In the Night Garden.

In a research update to clients yesterday, Bhangui maintained his BUY rating and $4.00 one-year target on DHX Media.

At press time, shares of DHX Media were up 2% to $3.49.

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