DHX Media gets upgraded to buy at Echelon Wealth after putting itself up for sale

A plan to maximize shareholder value at Halifax-based DHX Media (DHX Media Stock Quote, Chart, News: TSX:DHX) has resulted in a price target raise on the stock at Echelon Wealth Partners.

On Monday, DHX Media announced that it had initiated a strategic review -street speak for putting itself up for sale.

“DHX Media’s board of directors is committed to fully evaluating appropriate strategic alternatives while simultaneously supporting the company’s management and employees in their continuing efforts to deliver great and innovative children’s content and license the company’s brands globally,” the company said in a press release. “The board believes that pursuing these complementary paths is in the best interests of DHX Media’s shareholders, employees and stakeholders and is designed to maximize value.”

Analyst Rob Goff says he thinks this will ultimately be regarded as good news by shareholders.

“The announcement reflects on the high level of scrutiny of DHX’s execution, dissatisfaction with recent results and a focus on shareholder value,” he says. “While investors await evidence of concrete, material changes, we expect the announcement to be positively received.

The analyst thinks there will be a market for the company.

“We believe that the new digital media economics support an integrated model for production, broadcasting (showcasing), data analytics (AVOD), distribution (third parties might take 15+% and are less likely offer bundling advantages) and through merchandising and licensing where the IP holder retains an effective warrant on hit successes,” Goff adds. “The potential to sell the DHX TV assets is also an important consideration with respect to potential acquirers who might otherwise be precluded by virtue of the foreign ownership or concentration issues that would hold back either BCE or potentially Corus.”

In a research update to clients Tuesday, Goff upgraded DHX Media from “Hold” to “Buy”. The analyst’s price target of $7.00 implied a return of 28.3 per cent at the time of publication.

Goff thinks DHX Media will post Adjusted EBITDA of $87.3-million on revenue of $298.7-million in fiscal 2017. He thinks those numbers will improve to EBITDA of $125.2-million on a topline of $466.0-million the following year.

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