Analyst Rob Goff of Echelon Wealth Partners says that with its build-out of existing franchises and launch of new initiatives, WOW Unlimited Media (WOW Unlimited Media Stock Quote, Chart TSXV:WOW.A) is intent on adding significant shareholder value through 2019. In an update to clients on Tuesday, the analyst reviewed WOW’s 2018 update and 2019 guidance and reiterated his “Speculative Buy” rating and $2.40 target price.
Children and youth entertainment company WOW! released its corporate update and outlook on January 16, citing a number of growth initiatives for 2019, including a production backlog of $58.3 million, attractive market conditions for animation production, further development of branded direct to consumer initiatives and management’s push along the path to profitability.
“WOW!’s 2018 was a year of strong growth, as the Company focused on building its brand through the creation of highly popular content, the expansion of its networks and platforms initiatives, and the strengthening of relationships with key clients and partners,” said Michael Hirsh, Chairman and CEO, in a press release. “WOW! expects to build on that foundation through 2019 with the release of highly anticipated new content and strong growth in both of its operating segments.”
Goff says that management’s expected 2018 revenue and EBITDA totals ($70-$72 million and negative $3-$4 million) are in line with his estimates. Management’s forecast for 2019 includes a 40 to 45 per cent gain in revenue to between $98 and $104 million, significantly ahead of Goff’s $84.5 million estimate, while its 2019 EBITDA forecast of $3-$4 million came in line with his $3.7 million estimate.
“We are leaving our EBITDA largely unchanged for 2019 despite the significant revenue boost as we see WOW! generating higher revenues through increased investment in Frederator where its strategic focus is currently on building its viewership (at 3.3 billion plus per month) and brand while EBITDA is managed towards a modest positive to avoid a cash drain,” says Goff.
“Our 2019 forecasts remain a baseline scenario excluding the upfront drain associated with WOW!’s prospective launch of a linear channel. We could see losses associated with a new channel push our 2019 EBITDA towards a break even level depending on its programming push. We believe WOW! will apply its past financial discipline wherein the new channel would be expected to cross break-even within the first 24 months,” says Goff.
The analyst’s $2.40 target represents a projected return of 102 per cent at the time of publication.
“We continue to believe management will successfully launch new initiatives, build out its existing franchises and partner in a shareholder value creating scenario,” Goff says.