Analysts Welcome Lionsgate Selling Maple Pictures to Alliance Films

7:53 AM PST 06/21/2011 by Etan Vlessing
Lionsgate

Financial analysts welcome deleveraging by Lionsgate as it sells Maple Pictures to Canadian rival Alliance Films for $38.5 million.

TORONTO -- Lionsgate Entertainment’s sale of Canadian indie distributor Maple Pictures to rival Alliance Films for $38.5 million to shore up its balance sheet has been welcomed by financial analysts.

“This is a nice building block as LGF starts to constrict leverage through peripheral asset sales,” Greg Brown, an analyst with Wunderlich Securities, said in an investors note Tuesday.

Brown also raised his stock price target for Lionsgate to $10 from $8.50, due mainly to upside potential from the performance of its Mad Men and Hunger Games properties.

Elsewhere, Cowen analyst Doug Creutz argued that, with Lionsgate’s costly proxy fight with activist shareholder Carl Icahn in the rear view mirror, the indie studio can look forward to positive trends, including increased digital home video revenue that reduces distribution and marketing costs.

“The company’s television production arm is becoming an increasingly important driver of earnings, with operating margins now north of 10%, and the potential for further margin expansion ahead as more shows enter syndication,” Creutz wrote in an investors note.

The positive analyst reports come in the face of persistent criticism that Lionsgate remains vulnerable to falling industry DVD sales and depends for its profitability on an unpredictable theatrical film slate.

Despite those question markets, Creutz remains bullish on Lionsgate’s near-term stock performance.

“At current levels, we believe (Lionsgate) shares can outperform the market by at least 20% over the next 12 months,” he said.

The sale of the Lionsgate ownership stake in Maple Pictures, which releases its product in Canada, is part of a strategy by the Vancouver-based studio to monetize non-core assets to pay down company debt.

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