Key Takeaways

Strategic expansion into ancillary markets like gaming and consumer products is expected to diversify income sources and enhance profit margins.
Strong partnerships with major streamers and increased Canadian tax incentives bolster revenue growth and international project opportunities.
Increased costs from potential tariffs, declining licensing revenue, and reliance on lower-margin service work pose risks to Thunderbird's revenue and profitability.

Catalysts

About Thunderbird Entertainment Group

Develops, produces, and distributes film and television programs in Canada and internationally.What are the underlying business or industry changes driving this perspective?

Thunderbird Entertainment is increasing its production slate with both original and service content, notably adding more scripted productions, which is anticipated to drive revenue growth through releasing sequels and new series like Sidelined 2.
The expansion into ancillary markets such as gaming, consumer products, and toys, leveraging company-owned IPs like Super Team Canada and Mermicorno: Starfall are expected to open new revenue streams and improve profit margins by diversifying income sources.
Strong partnerships with major streamers like Netflix and Disney, and the ability to deliver high-quality IP and service productions, provide opportunities for earnings growth through increasing production volume, especially as these platforms expand their content offerings.
Recent increases in Canadian tax incentives for film production enhance Thunderbird's competitive edge in securing international projects, which is likely to increase production services revenue and overall growth prospects.
The strategic management of costs and increased efficiency, alongside a robust balance sheet with no corporate debt, position Thunderbird to reinvest in profitable opportunities, which should contribute to improved net margins and earnings stability.

Thunderbird Entertainment Group Earnings and Revenue Growth

Thunderbird Entertainment Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Thunderbird Entertainment Group's revenue will grow by 12.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 3.7% today to 6.2% in 3 years time.
Analysts expect earnings to reach CA$16.8 million (and earnings per share of CA$0.31) by about September 2028, up from CA$7.0 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 11.3x on those 2028 earnings, up from 10.9x today. This future PE is greater than the current PE for the CA Entertainment industry at 10.9x.
Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

Thunderbird Entertainment Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The imposition of tariffs on audiovisual content is a looming concern, as the current political situation is dynamic and could potentially lead to increased costs for Thunderbird if tariffs start to apply, affecting both revenue and net margins.
Licensing and distribution revenue decreased by 79% this quarter compared to the same period last year, primarily due to the timing of the airing of shows, which could affect overall revenue consistency and predictability.
The company's gross margins have declined due to an increase in lower-margin scripted and unscripted production service work, which could negatively impact net margins and the company's profitability profile.
A significant portion of growth is coming from production service engagements rather than proprietary IP, which generally yield higher margins; reliance on service work could limit longer-term earning potential and margin expansion.
The persistent industry headwinds and broader global uncertainties may pose risks to Thunderbird's ability to sustain its growth trajectory, potentially affecting revenue and earnings outlooks if market conditions deteriorate.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of CA$3.0 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$270.7 million, earnings will come to CA$16.8 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 8.8%.
Given the current share price of CA$1.55, the analyst price target of CA$3.0 is 48.3% 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.

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