TSX:TOY - Post Discussion
Post by
retiredcf on May 05, 2022 11:33am
RBC Upgrade
Their upside scenario target is also raised to $77.00. GLTA
Outperform
TSX: TOY; CAD 47.61
Price Target CAD 65.00 ↑ 63.00
Spin Master Corp.
Strong Q1 print; Growth outlook and margins for Digital Games to be increasingly in focus
Our view: Spin Master reported stronger-than-expected Q1 results, driven by strong top-line growth and solid margin performance. The company revised its guidance higher for Gross Products Sales and revenue and also provided margin details for its 3 segments, which we believe will be received well (details below). Revising price target +$2 to $65 and reiterating our Outperform rating.
Key points:
Q1 results well ahead of forecasts; Margin disclosure likely to be in focus
– Spin Master reported revenue of $424.2MM, ahead of RBC/consensus forecasts of $373.1MM/$368.5MM, and Adjusted EBITDA that was well ahead of RBC/consensus expectations. The company also revised its 2022 guidance higher for Gross Product Sales (low double-digit growth YoY vs. mid to high single-digit YoY previously) and for Revenue (low double-digit growth YoY excl. Paw Patrol related distribution revenue in 2021 vs. mid to high single-digit YoY previously). See Exhibit 1 inside for results details and Exhibit 2 for guidance details. In conjunction with Q1 reporting, the company also provided the much-anticipated segment margin disclosures. The disclosures for Q1 indicate a 16.8% Adjusted EBITDA margin for Toys, a 45.2% and 42.3% Adjusted EBITDA and Adjusted EBIT margin for Digital Games, respectively, and a 71.2% and 51.4% Adjusted EBITDA and Adjusted EBIT margin for Entertainment, respectively.
Digital Games: On the path to unlocking shareholder value – In Q1, Digital Games revenue was $51.1MM (+50% YoY), with the YoY increase driven primarily by higher in-app purchases in Toca Life World. As noted above, the segment generated a 45% Adjusted EBITDA margin and a 42% Adjusted Operating margin. While we suspected that Digital Games would be high margin, the 45% Adjusted EBITDA margin came in at the high end of our expectations, particularly given the size of the segment and the stage of growth that it is still in. Given that this segment's revenue stream is likely to be highly recurring (in part due to the subscription nature of purchases), we see potential for Digital Games to garner a higher multiple within the Spin Master portfolio and eventually drive the company's valuation as it grows larger (runway for digital/mobile gaming is still long). Looking ahead, we believe the introduction of new content and low incremental development costs should support user growth and margin expansion.
Entertainment generated a 51% Adjusted Operating margin in Q1 –The Entertainment segment generated revenue of $22.2MM (-18% YoY) in Q1, with the YoY decrease driven by more content deliveries in the prior year period. We note that this segment tends to "ebb and flow" with content releases, meaning that its top-line contribution to the company's results could vary in any given period. With that said, we were encouraged by the margin profile of this segment, which generated an Adjusted Operating margin of 51% in the quarter.
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