Spin Master Corp.
(TOY-T) C$43.26
Q3/22 Preview: Strong Comps Limit Near-term Catalysts
Event
Spin Master ("Spin") will report Q3/22 results after-market on November 2.
Impact: SLIGHTLY NEGATIVE
Q3/22 Preview: It is key to note that Spin is lapping a strong Q3/21 financial performance, inclusive of the successful Paw Patrol movie, that factors into our forecast for a modest decline in y/y revenue and a contraction in the EBITDA margin. Although we expect solid Q3/22 results by historical standards, we have lowered our H2/22 assumptions due to the depreciation of the euro and an anticipated moderation in consumer spend, in addition to a lower contribution from its Digital games segment. Our forecasts are slightly below current Q3/22 consensus.
Outlook: We anticipate Spin to maintain its annual guidance. That stated, our updated view is that 2022 results will be toward the lower end, as opposed to our view coming out of Q2/22 results that there may be a degree of cushion embedded in the outlook. Although we have lowered our financial forecasts, we continue to see numerous growth drivers in 2023, specifically within the Digital Games and Entertainment verticals. In our view, this should improve its applied multiple; however, we believe a sustained catalyst is likely toward the latter half of our investment horizon. We state this as due to industry seasonality, the 2022 pull-forward may result in lower y/y financial performance over the next four quarters.
Financial Position: Although Spin announced a small dividend in Q2/22, we await further progression on the company's ability to deploy its material surplus net cash resources.
Investment Thesis: We see tremendous value in Spin at the current share-price level. Admittedly though, in the absence of accretive M&A activity, we are pressed to identify tangible near-term catalysts. This should take hold as we obtain improved visibility into the 2023 growth engines, including NOID, a strong entertainment offering, including another Paw Patrol movie, and growing portfolio of internal and external licenses. This should narrow the valuation discount relative to its peers as Spin further realizes the benefits from its collaborative cross-selling strategy across its three creative centers.
TD Investment Conclusion
We are maintaining our BUY rating, with a revised C$60.00 target price.