DHX Media gets price target cut at Echelon Wealth Partners

Following the company’s second quarter results, Echelon Wealth Partners analyst Rob Goff has reduced his price target on DHX Media (DHX Media Stock Quote, Chart TSX:DHX), though the analyst is keeping his “Speculative Buy” rating on the stock.

On Tuesday, DHX reported its Q2, 2019 results. The company generated EBITDA of $22.0-million on revenue of $117.0-million, a topline that was down from the $121.9-million the company posted in the same period last year.

“In our second quarter, we made progress against our three strategic priorities of producing premium content, growing WildBrain and improving cash generation,” CEO Michael Donovan said. “We signed the largest content deal in the history of the company, which we believe will contribute steady EBITDA for the coming years, and WildBrain continued to deliver double-digit growth. We also experienced a 7-per-cent rise in consumer products revenue from Peanuts. Our strategic shift and disciplined cost management contributed to positive cash flow and allowed us to pay down $9.5-million of our debt in the quarter. DHX Media continues to sharpen its focus on its digital strategy. The board of directors has decided to reorganize the company under two subsidiaries along business lines, one for its cash flow generating studios and TV channels, and one for its global digital and content assets with significant growth potential, including WildBrain, distribution and consumer products.”

Goff says he sees a near tern bumpy road ahead for DHX, but thinks a recovery by the fourth quarter of fiscal 2019. He summarized the quarter.

“DHX reported revenue/EBITDA at $117M/$22M that were below our forecast at $119M/$25M and in turn the consensus at $122.4M/$24.8M,” he says. “Management noted on its call that it was relatively comfortable around full year F2019 consensus EBITDA at $83.5M. Full year revenues were not confirmed. While DHX has disappointed versus expectations in the past, new management has been particularly careful to not provide guidance. Consequently, the support for full year consensus EBITDA will likely warrant some support in the market.”

In a research update to clients today, Goff maintained his “Speculative Buy” rating on DHX Media, but lowered his one-year price target from $4.00 to $3.50, implying a return of 59.9 per cent at the time of publication. Goff thinks DHX will post Adjusted EBITDA of $77.9-million on revenue of $427.4-million in fiscal 2019.

“While past results leave DHX in a show-me category, we view the shares as attractively valued against our baseline forecasts,” the analyst adds. “Our aggressive PT target reflects additional upside associated with forecast upgrades about F2020 and beyond plus the prospects of additional value realization moves. We look for the Peanuts partnership with Apple to accrue significant cross-division operating gains in addition to strategic gains where the strength of the partnership draws additional marquee partnerships. We point to the announced deals with PLAYMOBIL, The Smurfs and Miffy as examples. In these forms of deals, DHX can gain production revenues, advertising.”