TD-FInally lowers target post c.callRecommendation: SPEC BUY Risk: SPECULATIVE 12-Month Target Price: C$2.50 Prior: C$4.50 12-Month Dividend (Est.): C$0.00 12-Month Total Return: 171.7%
Event Q1/24 results and Q2/24 guidance. Impact: MIXED We are happy with the cost reductions that Corus achieved in Q1/24, which allowed EBITDA to beat (the bullets on page three outline the components of cost reduction and buckets that are permanent vs. temporary). Advertising revenue was down a bit less than what we had expected in Q1/24, and guidance for Q2/24 is a bit better; so we have improved to -10% from -12%. However, we see no reason to model a near-term cyclical recovery in revenue until we get solid evidence of increased demand, because investors clearly have no willingness to price-in that scenario at this point. So we have lowered our revenue (and thus EBITDA/FCF) estimates for H2/24 and all of 2025. We believe our new forecasts leave a lot of room for upside surprises in a robust macro environment, and we note that our 2025 TV advertising revenue forecast of $736mm is 14% lower than what the company achieved in 2022, and down 23% from the pre-pandemic result in 2019. We view this as a harsh outcome relative to historical cycles. Bond yields have recovered slightly (as seen in Exhibit 1), but they remain at a level where it is hard to have near-term conviction in the equity price. We likely need to see the bonds much higher before CJR.B can re-rate materially higher. Asset sales or meaningful CRTC reform could be upside catalysts, but we have no visibility into those things being imminent. TD Investment Conclusion We cut our target multiple to 4.5x EBITDA versus 5.0x previously (still on 2025E with a 10% time-value discount) to reflect this uncertainty on the timing for either catalysts or an advertising revenue rebound, but even with lower forecasts and a lower multiple, we conclude that the value here is too much above the current share price to justify a rating change. Note that our target equates to a 22% 2025E FCF yield, which is a healthy cushion even versus the current bond yield. We are maintaining our SPECULATIVE BUY rating.