WildBrain Ltd (TSX: WILD) is a children's content and brands company, recognized globally for properties such as Peanuts, Strawberry Shortcake, Caillou, Inspector Gadget, and Degrassi franchise. The company owns the independent library of children's content. It licenses its content to broadcasters and streaming services worldwide and generates royalties through its consumer products program.

• See-saw financials: The company has witnessed ups and down its financial numbers in Q2 FY2022, where its revenue increased by 8% to CAD 153.2 million, compared to CAD 142.3 million in Q2 2021 but its gross margin clocked a dip by 100 bsp to 42%, while the net income saw a massive dip to CAD 4.6 million compared to CAD 11.3 million in the previous corresponding period.

• Industry beating margins: The company's strong determination enabled them to outperform the industry median margins on several fronts in Q2 2022, demonstrates the company's competitive edge within the industry. This is seen in the graph below.                 

   Source: REFINITIV, Analysis by Kalkine Group

• Cemented its footprint in China: The company's production operation in China is just getting started, with a worldwide relationship with iQIYI for the new original IP Jonny Jetboy from the creator of PAW Patrol and Bob the Builder. The agreement covers both production supervision and distribution and licensing outside of China for the new series.

• Decline in cash from operation: The company’s cash provided by operating activities in Q2 2022 stood lower at CAD 11.3 million, compared to CAD 41.4 million in Q2 2021.  While the free cash flow in the same period was negative CAD 0.8 million, against CAD 23.5 million in pcp, primarily due to significant growth in accounts receivable associated with larger deals in the current quarter. 
• Reaffirmed guidance for FY 2022: The company reaffirmed its expectations for Fiscal 2022 of achieving revenue in the range of CAD 480.0 million to CAD 500.0 million and adjusted EBITDA between CAD 87.0 million to CAD 93.0 million.
  

Stock recommendation 

The company presented mix set of numbers in Q2 FY 2022, where it registered a growth in top line, but failed to carry that momentum in bottom line. Furthermore, the cash from operations also declined and free cash flow stood at negative side compared to the previous corresponding period. Additionally, its debt-to-equity ratio at the end of December 31, 2021, stood at 10.83x, which is too high against the industry median of 0.44x, implying higher balance sheet risks. Moreover, on an NTM basis, the stock is trading at a premium to the industry on many parameters. Higher valuations versus an industry cast a shadow of doubt on investors' minds. Therefore, based on the above rationales and valuation, we recommend a “Watch” rating on the stock at the closing price of CAD 3.71 on March 18, 2022.

One-Year Technical Price Chart (as on March 18, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Disclaimer

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