TSX:TOY - Post Discussion
Post by
retiredcf on May 05, 2022 10:56am
TD Upgrade
Bump their target by $5.00. On any normal day, our SP would be rocking. GLTA
Spin Master Corp.
(TOY-T) C$47.61
Q1/22 Results - An Earnings Blowout and Upward Guidance Revision
Event
Last night, Spin Master ("Spin") reported Q1/22 adjusted EBITDA/EPS materially ahead of consensus. Management also raised its 2022 guidance.
Impact: POSITIVE
Q1/22 Summary: We anticipated record Q1/22 financial results, but Spin provided a Q1/22 present to investors, by exceeding expectations. The outperformance was due to sales growth in excess of the industry, inclusive of growth across each business segment. This was magnified by an EBITDA margin well ahead of expectations due to outsized leverage in a seasonally weak quarter, heightened contributions from high-margin IP/Digital Games, and pricing action offsetting inflationary pressures.
Guidance: Management updated its 2022 guidance, increasing its forecast for both gross product sales/revenue. The forecast margin was maintained despite a strong start to the year. We surmise there may be a degree of conservatism to the guidance but are cognizant that the lion's share of revenue/earnings are derived in 2H/22. We note the implied annual adjusted EBITDA is ahead of the pre-quarter consensus.
Segmented Disclosure: We were pleased with management's heightened financial disclosure - perhaps equally by the segmented margins and EBITDA contributions being in line with our pre-quarter estimate. This disclosure highlights that ~45% (and growing) of Spin's EBITDA is generated from the high-margin, high-multiple Entertainment and Digital Games segments. We believe investors will view this positively, thus narrowing the material valuation gap to its peers.
Financial Position: Spin has ~$500mm of net cash, with attractive FCF forecast in 2022/2023. We will look for an allocation update at its investor day today.
Conclusion: Spin has been in a trading range for the past year, despite handily exceeding 2021 consensus expectations, materially growing its net cash, having its valuation gap widen relative to its peers and illustrating an attractive growth outlook for its high-multiple operating segments. We believe that the strong Q1/22 results and increased guidance, along with disclosure that outlines the contribution from its Entertainment and Digital Games segments, should narrow the valuation gap to its peers, breaking it out of its trading range toward our revised target price.
TD Investment Conclusion
We maintain our ACTION LIST BUY recommendation with a revised $65.00 target.
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