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Spin Master Corp.
(TOY-T) C$41.90
Q3/21 Results — Resounding Beat Not Only Due to Paw Patrol Movie
Event
Last night, Spin Master (Spin) reported Q3/21 Adjusted EBITDA/EPS well ahead of consensus. Guidance for 2021 was increased.
Impact: POSITIVE
Q3/21 Summary: Spin handily exceeded Q3/21 consensus expectations for each of its key financial metrics. While the contribution from Paw Patrol licensing and toy revenue exceeded our lofty expectations, we note that Spin achieved positive GPS contributions within each business vertical, in addition to significantly higher-than- anticipated digital revenue. Strong consumer demand, coupled with price increases and productivity initiatives, offset inflationary pressures, including commodity inputs and freight costs. This resulted in adjusted EBITDA/EPS of $217mm/$1.26, which compares with consensus of $166mm/$0.89.
Guidance Update: On the heels of very strong Q3/21 results, Spin did increase its 2021 financial guidance. On the top line, management increased its forecast for both GPS and revenue. This is a function of strong POS across key product lines, implementation of price increases, and further strength for its digital platform and owned IP licensing. While these are high-margin contributors, Spin maintained its adjusted EBITDA margin guidance in light of current inflationary pressures. This updated guidance implies annual adjusted EBITDA of ~$361mm that compares with the current consensus of $338mm.
Financial Position: Strong FCF further improved Spin's net cash position to ~ $361mm (pre-IFRS 16) at the end of Q3/21. While $100mm is earmarked for Spin Master Ventures, we believe, in the absence of a notable M&A spree, the Board may in time, need to weigh the potential implementation of a dividend.
Conclusion: We anticipate a positive share price reaction this morning. Spin successfully navigated industry headwinds to achieve very strong quarterly results that are responsible for management once again increasing its annual guidance. Also, Spin continues to plan accordingly for future growth inclusive of a heightened digital presence, stronger contributions from licensed products, including DC Comics, and the announcement of a second Paw Patrol movie in the fall of 2023. We believe that the positive results/outlook should narrow the valuation gap relative to its peers.
TD Investment Conclusion
We are maintaining our BUY recommendation and C$57.00 target price.
