DHX Media has 72% upside, Echelon Wealth says

Children’s programming company DHX Media Ltd. (DHX Media Stock Quote, Chart, News: TSX:DHX.B) has a lot of valuable assets in its catalogue, says analyst Rob Goff with Echelon Wealth Partners, who in a Friday research update to clients maintained his “Buy” rating and $7.00 target price (all values in Canadian dollars unless noted otherwise).

Halifax-based DHX made news last year with the purchase of an 80 per cent controlling interest in Peanuts, acquired from Iconix Brand Group along with a 100 per cent interest in Strawberry Shortcake for US$345 million.

Goff says that at its recent AGM, DHX highlighted the evergreen value of Peanuts, which has enabled M&L deals with Levi’s and McDonalds. DHX also said that its partnership with Mattel should be “turning a corner” into generating free cash flow as the partnership moves from production and development to distribution and co-sharing M&L.

“While we expect investors to maintain their show-me perspective, we continue to believe that DHX holds assets in its library that can be monetized, that DHXTV can be sold and that production capacity is a further candidate for sale or partnering,” says Goff.

The analyst thinks DHX will produce revenue and adj. EBITDA in 2018 of $478.6 million and $128.8 million, respectively, and revenue and adj. EBITDA in 2019 of $510.9 million and $145.5 million, respectively.

“DHX shares are currently valued at 9.9x/8.4x c2018/19 EV/EBITDA with our $7.00 at 10.9x 2019 EV/EBITDA,” says the analyst. “Our PT finds primary support against our five-year DCF forecasts, where we have F2018-22 revenue/EBITDA CAGRs of 7.0 per cent/11.4 per cent.”

Goff’s $7.00 target represents a projected return of 72 per cent at the time of publication.