Ccord Prime Time
DHX Media Ltd (DHX : TSX : C$6.51) - Buy - Target:C$7.60 Rolling forward price target to F2016 given DHX'S June year-end; maintaining BUY rating, raising price target to C$7.60 (from C$6.70) Investment Highlights Target rises from C$6.70 to C$7.60 per share: Given that DHX Media has a June year-end and thus is just over a week away from F2015, we are rolling forward our target price to the following year -- F2016. Thereby the target rises from C$6.70 to C$7.60 per share. We use 12x EV/EBITDA to value the stock -- which we believe is justified by the high-growth nature of the business, its impressive track record of accretive M&A and the overall structural tailwinds supporting the business Stock up 27% over past month; how do the valuations seem now?: On an EV/EBITDA basis, the stock trades at 12.3x 2015E and 10.6x 2016E which in our view is quite reasonable for a high-growth name like DHX Media. Compared to the comps, DHX trades at a 1x and 2x premium respectively to its US peers Dreamworks Animation and Lions Gate Entertainment. There is, however, an important difference between DHX and these US names, and that is the heavy reliance of these US studios on the performance of their motion picture releases which are inherently volatile. If we look at Lions Gate's F2014 revenue breakdown, we see that 83% of its revenues are driven by Motion Pictures, the rest being derived from Television. This is doubly true for Dreamworks Animation, where the Feature Films division makes up 71% of revenues, but in the case of Dreamworks it is a much smaller number of titles (3 films per year versus over 10 for Lions Gate) which creates even greater volatility and uncertainty around future financial performance. In the case of DHX Media, the business model represents almost entirely TV/Digital sales (both production and distribution) and M&L which are relatively more predictable and stable line items. Key potential catalysts coming up: These include the closing of Family channel deal, which we expect will occur within 2-3 weeks (with CRTC approval expected shortly), a possible renewal of the Disney programming arrangement this year and announcements around key brands particularly on the M&L front.