CIBCHave a $40.00 target. GLTA
EQUITY RESEARCH
November 21, 2022 Flash Research
SPIN MASTER CORP.
Secondary Offering Should Help Liquidity, But Only Modestly
Our Conclusion
Now off restriction, we view the announcement of a Spin Master co-founder selling 1.9MM shares as a modest positive for TOY because of the added liquidity the transaction provides. Lack of liquidity has consistently been a barrier to ownership for larger investors. The timing of the news was unexpected, particularly considering the stock’s recent decline of >30% since September. We estimate the float increases by 2%, to ~37MM shares. Spin Master’s founders still own a majority of overall shares, now at ~64% (with ~95% of voting power).
Meanwhile, recent underperformance from HAS—the product of another
broker’s note about HAS’ Wizards business, which isn’t related to Spin
Master—has dragged down TOY shares further. Despite TOY’s attractive
valuation, at ~5x 2023E EBITDA, we believe a shortage of catalysts will
suppress the stock, while limited visibility exists to a positive industry
turnaround. In our view, investors can wait closer to H2/23 for a more
attractive entry point.
Transaction Details
On November 10, Spin Master announced that Anton Rabie, co-founder and Board member, entered an agreement to sell 1.9MM of his TOY shares, on a bought deal secondary basis. The 1.9MM shares were converted from multiple voting shares to subordinate voting shares on a one-for-one basis. The press release noted that the sale of shares was completed in order for Mr. Rabie to complete a previously made commitment to fund a private growth equity fund that he founded, and that this sale satisfies all his near-term financial commitments. The shares were sold at a price of C$32.10, an approximate discount of 6%
to the price at market close on November 10. Mr. Rabie will still own 29MM multiple voting shares following the offering: 27.5% of the equity and ~39.6% of voting power.
Target’s Outlook Confirms Toy Category Deceleration
Target—an important industry bellwether—noted in its Q3 call that
management has seen a meaningful deceleration in toys this quarter, most notably in October. This is in line with TOY’s commentary on its call that point-of-sale data had rapidly deteriorated in August and September.