Bullboard - Stock Discussion Forum Spin Master Corp T.TOY

Alternate Symbol(s): SNMSF

Consumer Cyclical Leisure

Spin Master Corp. is a Canada-based children’s entertainment company. The Company creates, designs, manufactures, licenses and markets a diversified portfolio of toys, games and products, creates and produces multiplatform content, stories and characters in both original shows along with short-form series and creates digital games and apps. It operates through three segments: Toys... see more

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TSX:TOY - Post Discussion

Spin Master Corp > TD

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Post by retiredcf on Oct 18, 2021 8:25am

TD

Spin Master Corp.

(TOY-T) C$42.57

Q3/21 Preview: Digital and Paw Patrol Should Offset Headwinds

Event

Spin Master ("Spin") is scheduled to report Q3/21 results on November 3.

Impact: NEUTRAL

Q3/21 Preview: We are cautiously optimistic that Spin has been able to navigate the global supply-chain issues currently affecting product availability in the industry. Although we anticipate that it may prove challenging to "chase" sales during the holiday season, we are maintaining our financial outlook. We believe that Spin has planned ahead with key product lines, implemented a degree of pricing power, and should benefit from heightened contributions from its Digital segment and success of its Paw Patrol movie. We believe this should offset inflationary headwinds/supply issues and enable Spin to meet/exceed consensus expectations.

Quarterly Contributors: We anticipate strong contributions from Spin's digital platform and the Paw Patrol movie in Q3/21. We believe that the growth trend at its high-margin digital platform should continue, including its recent bolt-on acquisition. In addition, with the Paw Patrol movie release in August, we should see an uptick in licensing revenue, toy sales, and a distribution payment from Paramount (offset by amortization matching). We do not see these verticals being notably affected by supply-chain issues.

Financial Position: We believe that another focal point will be M&A opportunities. The balance sheet remains flush with net cash of ~$311mm (pre-IFRS 16) as at the end of Q2/21. We expect Spin to be active in M&A over the near term, inclusive of expanding its digital capabilities and leveraging its material user-base.

Investment Thesis: There is no doubt that Spin is enduring a challenging operating environment with global supply-chain issues and the need to adapt to ensure product availability. However, we believe that the company is taking the necessary steps and had identified the impact of this risk on increasing revenue guidance with the Q2/21 release for its high-margin verticals. That said, the company maintained its target adjusted EBITDA margin. We maintain that Spin should be able to achieve its 2021 financial guidance, and in doing so, we believe that this should prove a catalyst and narrow the valuation gap relative to its peers.

TD Investment Conclusion

We are maintaining our BUY recommendation, with a reduced target price of C $57.00 (from C$58.00)