Scotiabank: we estimate thatCGX has sufficient liquidity
Latest Research (October 06, 2020):OUR TAKE: Negative.We have reduced our estimates and target price from $14 to $11 due to the delay ofseveral Q4/20 major film releases to 2021. With the lower EBITDAaL and FCF in Q4, we do not expect CGX tomeet its 3.75x net debt/EBITDAaL covenant by the end of 2020 and will therefore require the covenant relief to beextended by its lenders. Based on the new film release schedule in 2021, we think the covenant relief will have to beextended by two quarters to Q2/21. On liquidity, due to the convertible debenture financing in July, we estimate thatCGX has sufficient liquidity until the film slate returns in 2021. We also think additional liquidity will likely be realizedthrough a head office sale/leaseback transaction for at least $50M. We have maintained our SO rating based onthe important assumption that the lenders will grant CGX covenant relief for two quarters bridging thecompany to Q2/21 when the delayed films hit the theatres. Our new $11 target reflects lower 2020 and 2021estimates, does not assume any additional or potentially dilutive equity financing, and is based on 2H/21and 1H/22 estimates when we assume conditions return to "normal".CGX is scheduled to release Q3/20results on Friday, November 13th.