Spin Master Corp.
(TOY-T) C$48.00
Q2/22 Results - Tracking Growth Targets - Removing from AL Event
Last night, Spin Master ("Spin") reported Q2/22 adjusted EBITDA/EPS materially ahead of consensus, maintained its annual guidance, and introduced a dividend.
Impact: SLIGHTLY POSITIVE but lowering rating as several catalysts have played out
Q2/22 Summary: The Q2/22 release was positive, in our view, albeit neutral to our target price. The report included a material earnings beat largely due to a revenue pull forward from Q3/22, the maintaining of attractive annual growth guidance, the introduction of a dividend, and solid FCF resulting in material net cash on its balance sheet. While global economic pressures are leading to evolving consumer purchasing patterns including trade-down in price points, we believe Spin remains positioned to achieve its annual guidance and maintain an attractive growth profile in 2023.
2022 Guidance: Management maintained its annual guidance. While we hoped for a beat-and-raise, we believe FX fluctuations, an uncertain global economic outlook, and a degree of conservatism played into the prudent decision to maintain. While the annual guidance calls for double-digit growth (in both sales and adjusted EBITDA), admittedly it does imply a decline in financial performance in H2/22 as it laps a strong comparable period. This is a non-event operationally, however, it likely will not screen well with investors optically, in our view.
Financial Position: Spin ended Q2/22 with net cash of $558mm (~$6.75 per share). This, along with its attractive FCF outlook, supported the initiation of a dividend last night. We view this as a platform for gradual future increases, however, the key priority remains growth through acquisition across each of its three verticals. In the absence of near-term M&A, we forecast net cash of >$900mm by year-end 2023.
Conclusion/Action List Removal: We maintain our forecast/target price and view today's share decline as overly punitive. That stated, our near-term catalysts have unfolded including a strong H1/22, a guidance increase in Q1/22, a dividend introduction, and improved financial reporting disclosure. With y/y comparisons being challenging in forthcoming quarters, we see the next leg of appreciation now geared toward 2023 based on visible catalysts. As such, we are removing Spin from the Action List, but maintain our positive investment thesis over our investment horizon.
TD Investment Conclusion
We maintain our $65.00 target with a revised BUY recommendation (was Action List Buy).