Peanuts And Teletubbies Will Expand Global Consumer Markets

Key Takeaways

• Strategic focus on core franchises and global licensing, particularly Peanuts, aims to enhance revenue through expanded products and market penetration.
  
• Simplification of operations and focus on sustainable, high-cash-generative businesses support financial stability and earnings growth potential.
  
• Reliance on key regions and evolving macroeconomic factors, along with execution risks in strategy, pose significant challenges to WildBrain's revenue and profitability growth.

Catalysts

Engages in the development, production, and distribution of films and television programs in Canada, the United States, the United Kingdom, and internationally.

• WildBrain's strategic shift towards focusing on core franchises like Peanuts, Strawberry Shortcake, and Teletubbies, along with an emphasis on consumer products and global licensing, is expected to drive revenue growth through expanded product categories and increased market penetration.
  
• The sale of a 2/3 stake in WildBrain Television and subsequent simplification of the company's voting structure aim to streamline operations and provide strategic flexibility, which may improve net margins by reducing operational costs.
  
• Growth in global licensing revenue, particularly from the Peanuts brand, driven by social media engagement, expanded product categories, and geographic expansion suggests increased earnings potential from licensing deals and consumer products.
  
• Expansion in audience engagement through FAST (Free Ad-Supported Streaming TV) and AVOD (Ad-Supported Video on Demand) platform growth, leveraging partnerships with major brands like LEGO, is expected to increase monetization opportunities and contribute to higher revenues.
  
• The refinement of WildBrain's strategy to focus on sustainable IP-driven earnings and high-cash-generative businesses, along with improved free cash flow and a commitment to reducing leverage, supports the potential for increased financial stability and earnings growth.

WildBrain Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WildBrain's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -37.5% today to 1.9% in 3 years time.
• Analysts expect earnings to reach CA$11.1 million (and earnings per share of CA$-0.63) by about April 2028, up from CA$-178.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 64.6x on those 2028 earnings, up from -2.0x today. This future PE is greater than the current PE for the US Entertainment industry at 16.6x.
• Analysts expect the number of shares outstanding to grow by 3.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

WildBrain Future Earnings Per Share Growth

Risks

• The company's net loss from continuing operations was significant, driven by noncash unrealized foreign exchange losses and a noncash impairment of investment, which may indicate potential challenges in managing currency risk and asset valuation, impacting net margins and earnings.
  
• The reliance on territories such as North America and China for revenue growth exposes WildBrain to regional economic fluctuations and potential geopolitical tensions, which could impact future revenues and profit margins.
  
• The evolving macroeconomic environment, including potential U.S. tariffs on imports from China, could affect WildBrain's consumer products merchandise and increase operational costs, thereby affecting revenue and profitability.
  
• There is a potential execution risk with the ongoing transformation strategy and asset realignment, which, if not managed well, could disrupt operational efficiency and cash flow generation.
  
• The strong growth in global licensing, a key revenue driver, is heavily dependent on consumer engagement and licensing renewals; any downturn in these areas could pose risks to sustaining high growth rates in revenue and free cash flow.

Valuation

• The analysts have a consensus price target of CA$2.262 for WildBrain based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$3.0, and the most bearish reporting a price target of just CA$1.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$597.7 million, earnings will come to CA$11.1 million, and it would be trading on a PE ratio of 64.6x, assuming you use a discount rate of 11.0%.
• Given the current share price of CA$1.72, the analyst price target of CA$2.26 is 24.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.