DHX Media’s (DHX Media Stock Quote, Chart TSX:DHX) new multi-year “Peanuts” deal with Apple is a positive for the stock in a number of ways, says analyst Rob Goff of Echelon Wealth Partners, who on Friday increased his target price as a result of the deal, now calling for a 12-month target of $4.00.
Last week, Halifax-based DHX announced a new partnership to produce “Peanuts” content for the tech giant’s forthcoming streaming service. DHX acquired an 80 per cent controlling interest in “Peanuts” in 2017 and subsequently sold 49 per cent of its stake to Sony this past May. The new deal calls for the production of new shorts, specials and series episodes, all part of Apple’s aggressive push into subscription video on demand (SVOD) to compete with services provided by companies like Netflix and Amazon.
Goff says DHX will start receiving initial payments, milestone payments and delivery payments once work is completed, noting that the typical timeline for production of an animated series is 18-20 months, with quicker turnaround for shorts.
“In what should be its biggest deal to date, DHX has increased the value of its ‘Peanuts’ library with the brand rejuvenation expected from new content and Apple partnership/distribution,” says Goff in a client update on Friday. “With the Apple deal for new content, the company has secured a significant amount of animation production for its studio while also strengthening the merchandising and licensing value of its Peanuts brand.”
“We see the deal as a significant, positive validation of the value of marquee brands within DHX’s portfolio,” he says. “We believe the SVOD warfare with Disney and HBO launching services and with both Walmart and Amazon, pushing more aggressively will lead to higher marquee content valuations.”
Goff has revised his target based on his sum-of-the-parts valuation, putting it at a roughly 20 per cent discount to the high end of his analysis. Goff has revised his forecast, now calling for $435.7 million in revenue (was $448.6 million) and $81.1 million in Adj. EBITDA (was $87.0 million) in 2019.
The analyst is maintaining his “Speculative Buy” rating and raising his target from $3.40 to $4.00, representing a projected return of 42.1 per cent at the time of publication.