In a research update to clients this week, Wow Unlimited Media (Quote, Chart TSXV:WOW) received a target price reduction from analyst Rob Goff from Echelon Wealth Partners, who now pairs his reiterated “Speculative Buy” rating with a 12-month target of $2.40 instead of $3.00.
Children’s animation and media company Wow Unlimited is the amalgam of Rainmaker animation studio and YouTube-based multi-channel network Frederator, with Goff seeing the latter as outperforming and in itself possessing a value greater than WOW’s current enterprise value of $38 million.
“We continue to believe management will successfully launch new initiatives, build out its existing franchises and partner in a shareholder value creating scenario,” says Goff.
“Wow’s valuation leans more towards art versus science at this point as production accounting and new initiative investments create significant near term volatility about forecasts,” he says. “Our price target reduction considers external capital markets, where a higher revenue, lower EBITDA forecast for 2018 may defer prospective gains as investors await EBITDA forecasts for 2019+ that were left essentially unchanged or raised with higher revenues supporting higher longer term margins. Wow is currently focused on building scale and value with revenues exceeding forecasts and the contributing growth investments have resulted in higher near term EBITDA drains.”
Wow Unlimited released its second quarter 2018 financial results on August 28, reporting revenues of $16.3 million and EBITDA of negative $1.23 million. That compared to Goff’s revenue and EBITDA estimates of $11.8 million and negative $0.6 million, respectively. Accordingly, the analyst has revised his estimates going forward, calling for revenue and EBITDA in 2019 of $74.8 million and $4.2 million, respectively (was $68.7 million and $5.4 million) and revenue and EBITDA in 2020 of $85.7 million and $7.7 million, respectively (was $80.4 million and $8.4 million).
Goff’s revised target represents a projected return of 85 per cent at the time of publication.