CanaccordObviously well below consensus. GLTA
Following Tuesday's release of better-than-anticipated fourth-quarter financial results, Canaccord Genuity analyst Matthew Lee thinks Kew Media Group Inc. (KEW-T) is poised for both "solid" EBITDA growth and cash flow generation in fiscal 2019.
"Kew has seen an acceleration in net content investment (additions to film and TV rights) over the last two years as the company built its distribution library and worked to develop quality content," said the analyst. "While we still expect investment in film between production and distribution to be $80-million, the increasing delivery and distribution of content will drive up amortization and lead to a more even cash flow profile. We currently forecast Kew's investment in content net of amortization at negative $16-million for F19 (vs. negative $36-million in F18) with a working capital drain of $11-million (vs. negative $13-million in F18). The improvements in these areas, in tandem with higher EBITDA, drive our FCF estimate of $8-million.
"Due to the timing of production deliveries, we expect the company to report a modest Q1 with year-over-year declines in both revenue and EBITDA. However, we forecast a substantial ramp-up throughout the year as the produced TV shows are delivered to the buyers. We forecast EBITDA of $34.6-million for the year (8-per-cent growth), which is relatively in line with management's guidance."
Calling its valuation "attractive," Mr. Lee maintained a "buy" rating for Kew shares while lowering his target to $9 from $9.50 due to the weaker-than-expected FCF in the fourth quarter. The average on the Street is $11.50.
"We continue to see upside for Kew given its favorable business mix, EBITDA growth, and mid-single-digit FCF yield," he said.