Partnerships With Disney And Netflix Will Expand Future Content Slate

Key Takeaways

• Thunderbird is expanding into scripted content and ancillary businesses, enhancing revenue growth and diversifying content offerings with potentially higher margins.
  
• Strategic partnerships and increased BC tax credits will support consistent revenue growth and reduce production costs, boosting net margins.
  
• Reliance on lower-margin production services and decreased licensing revenue could hinder long-term profitability and adjusted EBITDA growth amid economic disruptions.

Catalysts

Develops, produces, and distributes film and television programs in Canada and internationally.

• Thunderbird is expanding its production slate by adding more scripted content, which is expected to boost future revenue growth by tapping into new market segments and diversifying its content offerings.
  
• The company is increasing its footprint into ancillary businesses such as distribution, games, consumer products, and toys, which presents additional revenue streams and opportunities for higher margins compared to traditional production services.
  
• Significant partnerships with major streamers and broadcasters, including Disney, Netflix, Apple, and NBCUniversal, provide a strong pipeline for future productions, supporting consistent revenue growth and potential expansion in earnings.
  
• Recent increases to the film incentive BC tax credit make Thunderbird more attractive for U.S. productions, likely reducing production costs and improving net margins for both domestic and international projects.
  
• Thunderbird's focus on creating and monetizing its own IP, like Mermicorno: Starfall and Super Team Canada, is expected to enhance profitability over time, as owning IP typically offers higher margins compared to service production work.

Thunderbird Entertainment Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thunderbird Entertainment Group's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 3.5% in 3 years time.
• Analysts expect earnings to reach CA$9.7 million (and earnings per share of CA$0.19) by about February 2028, up from CA$4.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 18.5x today. This future PE is greater than the current PE for the CA Entertainment industry at 18.5x.
• Analysts expect the number of shares outstanding to grow by 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.13%, as per the Simply Wall St company report.

Thunderbird Entertainment Group Future Earnings Per Share Growth

Risks

• Licensing and distribution revenue experienced a significant 79% decrease this quarter, which could indicate challenges in timing and the successful airing of new productions, potentially impacting future revenue streams.
  
• The gross margin decreased to 21.3% from 23.2% in the same period last year, influenced by the growth in scripted and unscripted production services that generally attract lower margins, potentially affecting net margins.
  
• There is a reliance on lower-margin production services to combat current market headwinds, which, while beneficial for cash flow, may slow adjusted EBITDA growth compared to revenue growth, affecting overall earnings.
  
• Revenue growth is driven significantly by production services rather than IP ownership, which may limit long-term profitability potential as owning IP offers higher margins compared to service work.
  
• Despite the potential benefits of increased film incentive tax credits, ongoing political and economic disruptions, including tariffs and industry headwinds, might create uncertainties impacting revenue and net margins.

Valuation

• The analysts have a consensus price target of CA$3.3 for Thunderbird Entertainment Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$272.9 million, earnings will come to CA$9.7 million, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of CA$1.78, the analyst price target of CA$3.3 is 46.1% 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.