What are we looking for?
As we move into the holiday season, we shift our focus from work to family. One of those pursuits includes entertainment during the break. If we are consuming entertainment, should we consider investing in it as well? With that backdrop, are there firms in this industry presenting investment opportunities – and what are the StockCalc models telling us?
The screen
We used StockCalc’s screener to select the top eight entertainment companies by market capitalization listed on the Toronto Stock Exchange and TSX Venture Exchange. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio;
If we have analyst coverage, we look at the consensus target price.
More about StockCalc
StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code ‘Globe30,′ which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The “StockCalc Valuation” column is a weighted calculation derived from our models and analyst target data, if used.
The entertainment industry in Canada includes companies that operate in or produce/distribute movies, television or media-based entertainment including video and cable television. The COVID impact was especially hard on the film side of this industry while television numbers rose. David Gross of movie consultant firm Franchise Entertainment Research told Associated Press that superhero films are back to about 75 per cent of prepandemic levels, adult character-driven genres are still down 66 per cent to 75 per cent from normal and family films remain 50 per cent off prepandemic levels.
All companies on our list are showing positive one-year returns. Generally, these companies are small by TSX standards, with only Corus Entertainment Inc. having a market capitalization of more than $1-billion. Most also have low daily trading volumes (not shown), so liquidity can be an issue when investing in them, or smaller companies in general.
Let’s look at two of them in more detail:
WildBrain Ltd., formerly known as DHX Media, is headquartered in Halifax with offices in Toronto, Vancouver and London. It is home to such brands as Peanuts, Teletubbies, Caillou, Inspector Gadget and Degrassi. Its television group owns and operates four entertainment channels that are among the most viewed in Canada, including the Family Channel. Our models are both above and below current price of WildBrain. Of interest is the ABV, which is low compared with the current price (a low ABV is not uncommon for intellectual property-based companies such as this). Cash flow and comparables are more representative of valuation here and the analyst target supports this.
ZoomerMedia Ltd. is a diversified media company focused on the “Zoomer” audience (people aged 45 and up) with the expectation that generation will not give up their loyalty to television. The company sees this group as “Canada’s most powerful audience,” citing the cohort’s outsized influence on the marketplace and ballot box, and its “reinvention of aging.”
All of our models are above current price for ZoomerMedia. Of note, this company also has preferred shares in its capital structure and pays a dividend on both its preferred and common shares.
Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.
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