Thunderbird Entertainment Group Inc (TSXV: TBRD) is a global award-winning, full-service, multi-platform media production, distribution and rights management company. The company is headquartered in Vancouver, Canada, with additional offices in Los Angeles, Toronto, and Ottawa. Thunderbird’s programs cover multiple genres with a significant focus on children’s productions, scripted comedy and drama, and non-scripted (factual) content. Thunderbird also has a global distribution and consumer products division. Thunderbird’s programs are currently being broadcast via conventional linear means and a number of digital platforms in more than 200 territories worldwide. A substantial and growing portion of Thunderbird’s programming library has been licensed directly to leading internet “over the top” (OTT) platforms such as Netflix, Hulu, Amazon and iTunes, which offer subscription video on demand (SVOD), transactional video on demand (TVOD) and advertising video on demand (AVOD) to their customers.

Business Model

Source: Company Presentation

Revenue Mix

Source: Company Filing (Q2FY Results)

Investment Rationale

• The COVID-19 Streaming Boom: The Company has remained fully operational throughout the coronavirus pandemic, with work continuing on all productions. Thunderbird’s ability to remain fully operational has also allowed it to respond to increased demand for content, which also includes new partnerships with major organizations. The Company continues to pitch, develop, produce, sell, deliver and service content to its partners, including Netflix, NBCUniversal, Nickelodeon, PBS, GBH, Bell Media’s Discovery, APTN, Corus Entertainment, The Weather Channel, and CBC, among others.

Source: Company Presentation

• Focus on International Expansion: Thunderbird’s strategy is to intentionally grow the company’s divisions and their respective brands by developing long-term value through the expansion of its programming library and leveraging its owned or controlled intellectual property (“IP”). While Thunderbird generates fee income during the production and initial distribution windows for its programs, one of the company’s main objectives is to create long-term value with programming that can drive multiple revenue streams. This involves developing and owning content that has established brand recognition, which in turn helps generate a broad array of revenue streams from licensing, such as merchandise, music, video games and other ancillary sources over an extended period.

Global Customers in 200 territories. Source: Company Presentation

• Increased Attention Towards the Kids and Family Programming: Children’s programming has been and continues to be an important and growing component of Thunderbird’s production slate and proprietary library. In 2015, Thunderbird expanded its focus on kids and family programming by making a substantial investment in animated programming with the acquisition of Atomic. Today, Atomic’s roster of clients and partners includes Netflix, Nickelodeon, PBS, Spinmaster, Sony, AppleTV+, Teletoon, Treehouse, Cartoon Network, Walt Disney, Mattel, Warner Bros., Marvel, Microsoft, Lego and NBCUniversal. Productions that Atomic has worked on include The Last Kids on Earth, Trolls: Trollstopia, Molly of Denali, Curious George, The Lego Star Wars Holiday Special, Hello Ninja, and Beat Bugs. Moreover, over the last six months, the majority of revenue growth reported by the company was mainly on account of growth in the kids and family division. Further, The Last Kids on Earth franchise announced that the video game The Last Kids on Earth and the Staff of Doom would be launched and be available for sales in the spring of 2021.

Source: Company Presentation

• Strong Q2FY21 Result: The group performance in the three months ended December 31, 2020 was exceptionally well, with Production services revenue jumped 63% to CAD 19.14 million against CAD 11.7 million reported in the same period of the previous financial year. Moreover, Licensing and distribution revenue jumped significantly on a YoY basis, with revenue from this segment nudged to CAD 8.7 million from CAD 2.4 million, implies growth of 272% on a YoY basis, mainly due to the timing of delivery of an animation series in the current period. Further, the company reported the net income from continuing operations at CAD 1.52 million against a net loss of CAD 306 million reported by the company in the same period of the corresponding previous financial year. Also, the group is rapidly growing and highly profitable with multi-platform business with >CAD15M AEBITDA in FY2020.

Source: Kalkine Group, Company Filing

• Bullish Technical Indicators: Thunderbird Entertainment shares are hovering in a steep bullish territory, with its share traded well above the long-term as well as short-term support levels of 200-day and 50-day SMAs. Also, the moving averages are edging higher. The Price/200-day SMA ratio of 1.82x implies that the stock is trading approximately 82% above the 200-day SMA, which is a strong bullish indicator. Further, the leading momentum indicator, MACD is rising with the difference between 12-day EMA and 26-day EMA is positive, which is another bullish indicator. Also, the MACD oscillator is hovering above 9-day SMA signal line.

Technical Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

• Risk Associated to Investment: The continuing resurgence of COVID-19, several social distancing measures are taken by the Company, and third parties, including governments, regulatory authorities, businesses and the Company's customers, could negatively impact the Company's operations and financial results in the future periods. Given the unprecedented and pervasive impact of changing circumstances surrounding the COVID-19 pandemic, there is inherently more uncertainty associated with their future operating assumptions and expectations as compared to prior periods, such as delays in production due to potential positive tests on live-action dramatic series.

Financial Highlights: Q2FY20

Source: Company Profile

• The Company reported revenue of CAD 28.0 million in the three months ended December 31, 2020, reflecting an increase of 98% over the comparative period.
• Production services revenue for the quarter increased by 63% over the comparative period due to an increase in the number and size of the contract.
• Licensing and distribution revenue increased by 272% over the comparative periods, due mainly to the timing of delivery of an animation series in the current period.
• In the current quarter, the Company recognized revenue from 10 episodes of an animation series (The Last Kids on Earth) and 6 episodes of a factual series (Highway Thru Hell Season 9). In the comparative quarter, revenue was recognized from 7 episodes of a factual series (Highway Thru Hell Season 8).
• Direct costs for the three-month ended December 31, 2020, increased 78% over the comparative period, consistent with the increase in the Company's animation production service revenue.
• Adjusted EBITDA was CAD 5.2 million for the three months ended December 31, 2020, compared to CAD 2.0 million for the comparative periods in fiscal 2020.
• Free cash flow was CAD 4.4 million for the three months ended December 31, 2020, as compared to (CAD 3.8) million for the comparative periods, an increase of CAD 8.2 million.
• During the quarter, Thunderbird had 21 programs in various stages of production. The Company's work airs on Netflix, Peacock, Nickelodeon, AppleTV+, Hulu, PBS, Bell Media's Discovery, Disney+, Corus Entertainment and the CBC, among others. Ten of the projects in production are Company IP or partner-managed.
• The Factual and Scripted Division, Great Pacific Media (GPM), was in production on four series and one documentary special: Highway Thru Hell (Seasons 9 and 10), Heavy Rescue: 401 (Seasons 5 and 6), $ave My Reno (Season 4), Mud Mountain Haulers (Season 1) and The Teenager and the Lost Mayan City (Documentary for CBC). Kim's Convenience was in production on Season 5.
• The Factual and Scripted Division, Great Pacific Media (GPM), was in production on four series and one documentary special: Highway Thru Hell (Seasons 9 and 10), Heavy Rescue: 401 (Seasons 5 and 6), $ave My Reno (Season 4), Mud Mountain Haulers (Season 1) and The Teenager and the Lost Mayan City (Documentary for CBC). Kim's Convenience was in production on Season 5.

Top-10 Shareholders

Top-10 shareholders together hold approximately 44.3% stake in the company, with Radcliffe Foundation and Paes-Braga (Brian Alexander) are among top two shareholders holding 14.02% and 7.89%, respectively.

Source: Refinitiv (Thomson Reuters)

Valuation Methodology (Illustrative): EV to Sales based Valuation Metrics

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: Thunderbird Entertainment is a rapidly growing and highly profitable, multi-platform business with >$15M AEBITDA in FY2020. The company has 200 trusted global partners, including Netflix, HBO Max, Nickelodeon, Discovery Channel, Apple TV+, Disney+, NBCUniversal, CBC and traditional broadcast and cable channels. Moreover, the group is continuing to pursue an aggressive organic growth strategy through investment in owned-IP as well as strategic M&A. The group has a highly regarded management team with industry-leading track record of working with the best creative talent and developing global brands and rating hits.

The 5G expansion is a favorable development for the overall entertainment industry as the spread of 5G is driving demand for new high-quality content as users would be able to download content within seconds on any device, anytime, anywhere in the world.

Further, its shares are hovering in a steep bullish trend, with stock traded well above all major support levels.

Therefore, based on the above rationale, risks associated, and valuation, we suggest a “Speculative Buy” recommendation on the stock at the closing price of CAD 4.60 on March 30, 2021.  

1-Year Price Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

*Recommendation is valid at March 31, 2021 price as well.

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Disclaimer

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