still good news
David Pett, National Post · Sept. 15, 2011 | Last Updated: Sept. 15, 2011 5:05 AM ET
MEGA Brands Inc. is worth more than its current share price based on recent M&A activity in the toy industry, says a new report from Martin Landry, an analyst at GMP Securities Inc.
The Montreal-based maker of Mega Bloks, RoseArt and MagNext is as much as onethird undervalued, based on Oaktree Capital Management's hostile bid to acquire JAKKS Pacific Inc., a designer and marketer of toys and consumer products, Mr. Landry said in a note to clients.
Oaktree's US$20 a share offer represents a premium of 25% over JAKKS closing price on Tuesday as well as over the average closing price of the company's shares in the last 24 months.
"The proposed purchase price of US$670-million, would value JAKKS Pacific at roughly 14x 2011 EPS estimates and roughly 7.5x 2011 EBITDA estimates," he said in a note to clients.
"Applying the same valuation multiples to MEGA Brands, we would derive a value of around $12 per share, representing potential upside of 33% from MEGA Brand's current share price."
In March, Japan based Tomy Company purchased RC2 Corporation for similar valuation multiples of 14.5x 2011 EPS estimates and 8x 2011 EBITDA estimates.
Mr. Landry maintained his Buy rating on MEGA Brands stock and left his $11 price target unchanged.
"While there are some challenges ahead for MEGA Brands such as increased competition from Hasbro in the construction toy category, rising input costs, and a mature industry faced with strong competition from the internet and mobile gaming, in our view, these challenges are already reflected in the company's valuation," he wrote.