Maintains Action Buy Event
Canada's Federal Election is scheduled on September 20, and Corus is expected to
report Q4/21 results on October 22.
Impact: NEUTRAL
We are not changing our estimates today (Exhibit 1 shows that our Q4/21 forecasts
are in line with consensus on revenue and slightly above on EBITDA), but we
have even more confidence that our assumption for TV advertising revenue growth
in Q4/21 (+20% y/y, with quarterly trending shown in Exhibit 2) can be met or
exceeded owing to tailwinds from political spending. To be clear, election advertising
in Canada is never as material as we see in the U.S. every two years, but we
believe the incremental demand could boost revenue by a few million dollars (some
in August, so Q4/21, and some in September, so Q1/22). We believe the timing is
also favourable because these election ads are coming during the typically slow latesummer period for the broadcasters. Demand from traditional brands usually picks
up in late-September, concurrent with both cooler weather and the debut of new fall
programming. We continue to believe that advertising demand is recovering nicely
from the pandemic, despite some categories remaining well below normal levels
(including automotive, due to supply constraints).
Election platforms: There is nothing in the platforms of the two leading political
parties that concerns us. If the Liberals stay in power, then we believe Bill C-10
will continue to be pursued with minor modifications, which should lead to more
flexible and less onerous regulations for licensed Canadian broadcasters. If the
Conservatives win, they say they will repeal C-10, but they will replace it with
something that provides basically the same benefits that we had been expecting for
broadcasters (some excerpts from the plan are presented on page three). In short,
we see no reason for CJR.B investors to fear either election outcome.
TD Investment Conclusion
We maintain our ACTION LIST BUY rating and we continue to believe that CJR.B
shares are misunderstood and structurally undervalued at a FCF yield of 22% on
our 2022 estimate.