Spin Master Corp.
(TOY-T) C$41.56
Q4/21 Preview: Solid Results Forecast to Cap Strong 2021
Event
Spin Master ("Spin") is scheduled to report Q4/21 results on February 28.
Impact: NEUTRAL
Q4/21 Preview: We believe consumer demand for the toy industry remained strong in Q4/21, which should bode well for Spin based on its competitive product offering and elevated inventory position exiting Q3/21, despite global supply-chain issues. It is our view that pricing power should offset inflationary pressure, and that a favourable product mix consisting of heightened digital/licensing sales should enable Spin to meet/exceed its annual revenue growth and EBITDA margin targets.
Outlook: Admittedly, we have a muted growth outlook for 2022 as we lap a strong comparable period. That stated, we will be looking for management to provide its initial annual guidance that could lead us to revisit our growth assumptions. Recall that Spin will have three new Paw Patrol themes in 2022, heightened contributions from licenses including DC Comics, and a focus on growing its digital business. We are introducing our 2023 financial forecasts that incorporate an acceleration of growth relative to 2022. Key drivers of this include a Paw Patrol sequel movie, in addition to the ramp of Spin's digital initiatives including NOID. We highlight that Spin currently has a material net cash position, and positive FCF outlook over our forecast horizon. Recall that management is actively looking to deploy its capital through its stated growth vertical of acquisitions, which, if successful, we would view as upside potential to our current forecasts.
Financial Position: On a pre-IFRS 16 basis, we estimate that Spin will have > $400mm of net cash at the end of 2021. We also forecast FCF generation of ~ $200mm annually through 2023.
Investment Thesis: We believe that Spin has the strategy and financial capacity to achieve growth on average in excess of the industry. With this view, and the accelerated growth outlook in the verticals of digital and entertainment, we believe that the valuation gap between Spin and its peers should narrow. We are rolling forward our valuation to 2023, and we have lowered our target multiple in the context of a rising yield environment.
TD Investment Conclusion
We are maintaining our BUY recommendation and C$57.00 target price.