Action Buy List Recommendation: ACTION LIST BUY
Still Heavily Undervalued
CJR.B shares are down 10% (from $6.34 to $5.71) in a month since better-thanexpected Q3/21 results
Impact: NEUTRAL
We are making no forecast/target price changes today, but we are introducing
estimates for 2023. As advertisers continue to position for the re-opening of the
Canadian economy, we remain confident that Corus will meet or exceed our revenue
growth forecasts for both Q4/21 (we estimate TV ad revenue up 20% y/y and radio
revenue up 27%), and then perhaps more importantly for the busy fall period in Q1/22
(we estimate TV ad revenue up 16% and radio revenue up 15%). Despite CEWS
benefits getting lapped and programming schedules/costs increasing back to normal
levels, these improvements in revenue should drive solid y/y growth in EBITDA
(we estimate +10% in Q4/21 and +5% in Q1/22). We also remain confident that
positive consolidated revenue growth will be sustained in both 2022 and 2023 owing
to a combination of increased content production/sales, increased digital revenues
(largely STACKTV subscriptions), and increased AdTech adoption (audience-based
buying; programmatic/cynch; and dynamic ad insertion).
TD Investment Conclusion
The recent decline in CJR.B shares has created a very attractive buying opportunity,
in our opinion. We reiterate our ACTION LIST BUY rating. The pace of revenue
recovery from the pandemic has consistently exceeded our expectations over the
past year (Exhibit 1 shows our quarterly TV ad revenue estimates as of the Q4/20
release last October, and then the actual results plus our upwardly revised forecasts
since then), but the stock continues to languish below pre-COVID-19 levels ($6.00
high in January 2020). Based on our FCF estimate for 2022, Corus is trading at an
FCF yield of 24%, which we view as heavily undervalued for a company generating
consistent positive revenue growth and stable cash flow. The stock is also heavily
undervalued vs. U.S. media peers (more details on page two). Continued debt
repayment should shift about $1.10 per share in enterprise value to equity holders
per annum, plus the dividend yield is attractive at 4.2%. Investors also get a free call
option on any future regulatory relief, including potential industry consolidation.