Corus Entertainment Inc.
(CJR.B-T) C$5.27
A Win from the Government and Q2/21 Preview Event
Q2/21 just ended on the weekend and results are expected on April 9. Furthermore, in late-2020, the Government of Canada decided to temporarily waive CRTC Part II fees (levies placed on broadcasters to offset regulatory administration costs) in order to help the industry manage through continued lockdowns. We now expect the full annual benefit of these fee reductions (approximately $8 million) to be recorded in opex in Q2/21.
Impact: SLIGHTLY POSITIVE
We have increased our Q2/21 and FY2021 estimates today. The aforementioned CRTC fees account for the majority of the EBITDA increase, but we have also increased revenue estimates slightly owing to our recent conversations with media industry players. We still expect a y/y decline in TV advertising revenue in Q2/21 (lapping the pandemic impacts will happen in Q3/21), but we have adjusted our estimate to -7% from -10%. Many new shows and episodes are returning to the airwaves at Global TV and the specialty channels (Canadian content and foreign), but costs remain below normal levels for this time of the year, given that some program deliveries are still being delayed.
TD Investment Conclusion
The broadcasting comps for Corus have seen big share-price gains since the first vaccine news in November, and they are all now up versus the beginning of 2020 (see Exhibit 1), seemingly on investor expectations of a healthy recovery in advertising trends after the pandemic. Investors also seem enthused about moves by legacy broadcasters into more targeted advertising and digital/streaming services, which are areas where we are seeing both increased traction and disclosure by Corus as well. CJR.B remains down slightly since the start of 2020 and we reiterate our ACTION LIST BUY rating as we believe that it is the best reopening play in our coverage universe. With beneficial changes in Canadian regulations seeming likely, we believe that Corus' revenue and FCF will be far more stable going forward than what the current FCF yield implies (23% on 2020A FCF/share), and we also see a free call option for investors if more consolidation is allowed in the industry.