Spin Master Continues to Invest in Its Brands Despite Facing Another Tough Year for the Industry

With more than two decades since its inception, Spin Master has developed and acquired a plethora of well-known brands like Paw Patrol and Hatchimals, amassing 2% share in a fragmented, roughly $100 billion global toy industry (Circana). Utilizing a multifaceted plan for growth focusing on innovation in toys and digital games, higher penetration of overseas markets (which composed more than 40% of 2023 sales), the pursuit of strategic acquisitions, and the development of evergreen global entertainment properties, we believe Spin Master has the ability to grow into nascent product and geographies. This, in turn, should help the firm near the pace the global toys and games industry is forecast to rise globally (at 5.9% between 2024 and 2027, per Euromonitor), including acquisitions and venture projects. Further, we posit now-completed supply chain optimization, with warehouses consolidated and sourcing better diversified, should support solid operating metrics (we forecast a 14% average operating margin over the next decade). Spin Master is set to generate average free cash flow to equity of around $270 million over the next five years, facilitating investment in its operations while maintaining the flexibility to strategically add assets to its mix.