Opinions James Telfser
DHX MediaDHX.B.TODON'T BUYNov 14, 2019
Stock price when the opinion was issued
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Peter Hodson
James HodginsThe CEO just stepped down. They were growing fast and adding debt to find it but then the growth fell off and they were left with the debt, so they started a strategic review and the CEO stepped down. This is not a great development. You should look elsewhere. He thinks they will have to sell the company now.
Produces and licenses children's content such as TV shows. Also licenses the properties to toymakers on different types of products. Got into a bit of a quandary where they were ramping up debt load and the earnings growth slowed down. The market punished the stock. Valuation is now getting to a level where it is a bit easier to digest. There are also activists entering the stock. The recent move by Disney, where they purchased some assets from Fox and were making a big statemen of the importance of owning content, is important. There may be potential buyers sniffing around a company like this, for the content. Still a higher risk, but he would be okay with a half position.
Over the last number of years, they’ve been making a lot of acquisitions and raising the amount of their debt. The cash flows from these acquisitions hasn't really come through as had been expected. Debt is very, very high and they need to figure out how to get more cash in their cash flow, so may have to sell off some assets. He would stay away.
Was surprised at the negative reaction the market had after they said they are looking for a buyer. Disney would be ideal, but that has some issues, because of the Canadian assets that have to be owned by Canadian entities, but there are always ways you can get around that. The company has a balance sheet problem, which is why the stock is not doing well. It's cheap as a takeover.
(A Top Pick Nov 16/16. Down 42%.) This surprised him. Content is king in media. And what is really good is kids content. It will last forever. If you added up its current transactions, you could easily get a $15-$20 valuation. However, in this case, the company just couldn't execute. Sold this after the last quarter.
This is the time of year when people should be looking at portfolios, and think about taking tax losses. He takes most of his tax losses in May. At $4 a share, this is way above where he would've bought in. Look at the financials and why you bought in. Think about what is going on with the company. Take a close look at their debt levels. There is a reasonable chance that before the end of the year, there could be tax loss selling.
This may be a sign of the times, where they essentially own cable subscription type services. A niche segment in the TV industry. There has been lower viewership and lower advertising dollars, which hurts revenues. Not sure the slide in the stock is done yet and would be a little leery. If you own, consider if there are better opportunities for your money to work.
