Corus Entertainment Inc. T.CJR.B

Scotia Analysis

[SunsetGrill]

Media

Corus Entertainment Inc.

• CJR.B-T: C$0.90
• Target: C$1.10
• Rating: Sector Perform

Lower Content Costs Help Improve Profitability

OUR TAKE: Slightly Positive. As expected Q1 results were pressured by the Hollywood strike which reduced viewership and hence ad spending. Given that content will be back materially only in March, Q2 is also expected to remain under pressure; however, we do expect the y/y rate of decline in ad revenues to improve sequentially. What surprised us the most this quarter was the amount of cost reduction expected in 2024 from lower TV program spending which has led to an increase in our profit estimates. Overall, we believe improved profitability in 2024 should provide support to the stock; but until we see a steady improvement in the secular decline affecting subscribers and ad spending in the TV industry, we are keeping our Sector Perform rating.

KEY POINTS

TV advertising cyclicality pressure beginning to dampen. TV advertising revenue declined 17% y/y during the quarter on the back of lower demand exacerbated by the Hollywood strike which halted new scripted shows and lowered audiences. As the strike is now behind us, production is back on track and original scripted programming is expected to return beginning in mid February with the majority of content to be released in March. The company expects the relaunch to help bring advertisers back as audience delivery will likely tick up. We expect that a lag between the release of content and returning advertisers as the distortion from post-pandemic advertising continues to linger. Nevertheless, we expect a slower decline of ~9% y/y in Q2 ad revenue, which is in line with management’s expected high-single to low double-digit decline, but it is not until Q3 that a more material improvement will likely flow to revenues.

Subscription revenues down more than anticipated. TV subscription revenues fell 7% y/y in the quarter, reflective of the declining traditional linear business and carriage disruption issues with Eastlink. The usual anticipated back-to-school season lift in subscriptions was not visible in the quarter and streaming subscribers remained muted. Towards the end of fiscal Q1 however, StackTV subscribers began to trend up (after being flat for many quarters). Though the uptick was not realized in the quarter, we expect subscription revenue to improve sequentially with a slower decline of -5% y/y in Q2.

Cost-saving initiatives to boast higher profitability. Management highlighted two permanent cost savings on the call: (1) $100M reduction to programming costs in F2024 vs F2023, where half pertains to Canadian content and (2) $8M in G&A expenses during the quarter that included reducing headcount and CRTC Part II fees. While we believe that consolidated revenues are likely to continue to exhibit pressure due to secular long-term trends, we are optimistic that management’s cost-cutting initiatives (both announced and planned) should help improve the bottom line in F2024.

• Quarterly Financials
• Yearly Financials

Historical price multiple calculations use FYE prices. All values in C$ unless otherwise indicated.
Source: FactSet; company reports; Scotiabank GBM estimates.

Note: CJR.B-T Non-voting shares.

Qtly Adj EPS  (FD)	Q1	Q2	Q3	Q4	Year	Price/Adj. EPS
2022A	$0.37	$0.08	$0.15	$-0.08	$0.52	7.1x
2023A	$0.17	$-0.07	$0.09	$-0.04	$0.15	8.9x
2024E	$0.20A	$-0.02	$0.14	$-0.02	$0.30	2.6x

Exhibit 1 - CJR Summary Model