On Monday, Halifax-based DHX announced its third quarter fiscal 2018 financials, posting an $8-million loss over the period ended March 31 on a topline of $116.5 million. The company said it is currently undergoing a strategic review and as such has refrained from providing further guidance on its 2018.
“While top- and bottom-line results were below our expectations this quarter, content distribution and WildBrain delivered strong organic growth and Peanuts continued to perform ahead of plan,” said Michael Donovan, Executive Chair and CEO, in a press release. “We have taken corrective steps to return to sustainable growth, including executive changes, additional streamlining of costs and a refocusing of our business to enhance margins and cash generation.”
The company’s revenue and EBITDA results of $116.5 million and $26.7 million, respectively, came in below Goff’s and the Street’s estimates, which called for $120.1 million and $33.5 million, respectively, in Goff’s case and $122.7 million and $34.2 million, respectively, by consensus.
But the analyst sees the Sony deal (49 per cent of DHX’s Peanuts stake for $237 million in cash) as a significant positive, in that it cuts into the company’s debt load, secures a new strategic partner in Sony and, by getting back roughly 25 per cent more than it paid for the stake last year, provides validation for DHX’s initial purchase.
“Furthermore, we believe the Sony partnership de-risks the prospects for Peanuts in Japan, given its local market strength,” says Goff. “Sony has significantly over-indexed the Snoopy brand in Japan where it has doubled revenues since 2010 to the point where sales in Japan represent ~40 per cent of its overall sales. We could see additional partnership arrangements with Sony given the relevance of DHX’s library and its
“Unfortunately, the positive moves associated with the Sony announcement were overshadowed and will likely remain overshadowed by disappointing results, the removal of guidance and the announcements that the strategic review would be reviewing the potential suspension of the dividend and delisting from NASDAQ, where its annual listing costs ~$2 million,” says Goff.
The analyst has revised his forecasts for DHX, calling for revenue and EBITDA in F2018 of $465.5 million and $115.9 million, respectively, down from $478.6 million and $125.8 million, respectively.
The new price target of $5.75 (was $7.00), arrived at through a 7.9x EV/F2019 EBITDA valuation, represents a projected return of 73 per cent at the time of publication.