DHX Media will benefit from Disney Plus, Echelon says

With its library of titles and premium brands, children’s television company DHX Media (DHX Media Stock Quote, Chart TSX:DHX) should do well in the current climate favouring streaming services. So says Echelon Wealth Partners analyst Rob Goff, who on Tuesday reiterated his “Speculative Buy” rating and $3.50 target price.

Earlier this month, Walt Disney Co. jumped into the SVOD battleground with the announced launch of its Disney+ service, which will stand in competition to a growing field which includes Netflix, Amazon Prime, Hulu and HBO.

Goff says the developments speak to the value of content, including that owned by DHX.

The analyst calls DHX’s 2018 strategic review a “definite step in the right direction” for the company, saying it has clearly focused its content strategy on its premium brands like Peanuts as well as shorter-form content that can incubate on the Wildbrain YouTube channel and has demonstrated that approach through its Apple partnership, announced in December 2018.

“We originally saw the Apple deal as a significant, positive validation of the value of marquee brands within DHX’s portfolio and validation of management’s focus on value realization. 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,” says Goff.

Ahead of DHX’s third quarter financials due next month, Goff is forecasting non-WildBrain Distribution revenues at $21.3 million down 20 per cent year-over-year measured against $26.6 million for Q3 2018.

“Be it a tough year-over-year comp or a disappointing quarter on its own, we believe that the strong macro market and demand for DHX content provides downside support or buffer by the prospect of shareholder value realization through partnerships, content sales, divestitures, or takeover,” says Goff.

The analyst expects DHX to generate 2019 revenue and Adjusted EBITDA of $431.8 million and $78.9 million, respectively. His $3.50 target represented a projected return of 79.7 per cent at the time of publication.