Echelon bullish on DHX Media’s Peanuts acquisition as Charlie Brown moves to Canada

The acquisition of an iconic brand has Echelon Wealth Partners analyst Rob Goff raising his price target on DHX Media (DHX Media Stock Quote, Chart, News: TSX:DHX.B).

Yesterday, DHX Media announced it signed a definitive agreement to acquire the entertainment division of Iconix Brand Group Inc., which includes both an 80-per-cent controlling interest in Peanuts and 100 per cent of Strawberry Shortcake, for (U.S.) $345-million. The company said the remaining 20-per-cent interest in Peanuts will continue to be held by members of the family of Charles M. Schulz.

“Peanuts is one of the world’s greatest entertainment brands, with a tremendous global legacy of comics, animated content and consumer products reaching back almost 70 years,” said DHX CEO Dana Landry. “We are thrilled by the opportunity to welcome Charlie Brown, Snoopy, Lucy, Linus and the entire Peanuts gang into our family of leading kids properties, including Teletubbies, Inspector Gadget, Caillou, Degrassi and others.”

Th family of the late Charles Schulz said DHX was the right fit.

“The Schulz family is thrilled to be partnering with DHX Media, as we have been greatly impressed by their professionalism and expertise,” said Craig Schulz. “My father’s comic strip and his entire body of work has delighted generations of fans for over 66 years, and we feel confident that DHX Media are the right people to help propel Peanuts into the future.”

With the once high-flying DHX having sold off for more than two years, Goff says he thinks this acquisition could be the charge that DHX’s library needs to kickstart some growth again.

“While FQ417 looks for significant y/y growth in the non-WildBrain distribution revenues, we have been disappointed to see a moderating of library sales growth in the traditional distribution revenues,” says the analyst. “We believe the acquisition of Peanuts/Strawberry Shortcake has significantly strengthened DHX’s global distribution capabilities and given WildBrain a very significant boost. We look for stronger organic growth to be driven by improved distribution revenues (where non-WildBrain revenues exceeded guidance and full year guidance was increased) and as Teletubbies’ M&L revenues emerge from their current minimum payments. Evidence of improved organic growth along with the aggressive FCF ramp support positive revaluation considerations in future quarters.”

In a research update to clients today, Goff maintained his “Buy” rating, but raised his one-year price target on the stock from $10.00 to $10.50, implying a return of 78 pe cent at the time of publication.

Goff thinks DHX Media will post EBITDA of $104.9-million on revenue of $314.2-million in fiscal 2017. He expects these numbers will improve to EBITA of $158.5-million on a topline of $508-million the following year.

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