DHX Media is a Buy, Echelon Wealth says

Shares of DHX Media (DHX Media Stock Quote, Chart, News: TSX:DHX) took a tumble over the latter half of 2017, but expectations are it’ll be a big mover in 2018 thanks to a red-hot market in subscription video, says analyst Rob Goff of Echelon Wealth Partners.

The Halifax-based children’s programming giant reported yesterday on its second quarter and six-month results for the period ending December 31, 2017, with revenue of $121.9-million and a profit of $7.4 million in the last quarter, up from $78.9 million and $5.8 million a year ago.

The growth merits a revised forecast, says Goff, who raised his F2018 revenue/EBITDA by $8.5M/$0M to $478,570M/$115,322M, along with a raise of estimates on F2018 pre-working capital FCF by $1,238M to $2,267M.

Much of DHX Media’s growth has to do with the sea change in entertainment provision worldwide, as more and more companies are jumping into the so-called over-the-top (OTT) streaming space and are on the lookout for content, which DHX has plenty of —including Teletubbies, Inspector Gadget, Caillou, Strawberry Shortcake and, acquired last year, a 80 per cent controlling interest in the iconic Peanuts.

In a report to clients on February 13, Goff says the consolidation and rush of streaming service competition from companies like Netflix, Amazon, Disney and Apple bodes well for DHX.

“The leading OTTP providers are clearly investing in marquee proprietary content for customer growth. This is the area where DHX’s production capabilities could realize clear wins,” says the analyst. “It also fits with the company’s comments that it would be producing fewer more expensive productions. Children’s content is roundly recognized as a strong retention lever. This plays into the strength of DHX’s library.”

Goff gives DHX a “Buy” rating and a 12-month $7.00 target price, representing a 56 per cent return on investment at the time of publication.