Scotia Remains at $10 and liked earnings.We Believe 2H/F22 Growth Is the Key Catalyst
Rating Sector Outperform
1-Yr. Target C$10.00 CJR.B-T C$5.53
1-Yr. Return 85.2%
Div. (NTM) $0.24 Div. (Curr.) $0.24
Yield (Curr.) 4.2%
OUR TAKE: Neutral. Post Q4F21 results, we maintain our Sector Outperform rating and $10 target. CJR has shown two consecutive quarters of revenue growth, which we expect to continue each quarter in F22. CJR continues to trade at an attractive valuation of 4.7x NTM EV/EBITDA and 26% FCF yield. We believe the key catalyst is for CJR to demonstrate that the return to growth is more than a pandemic recovery, which would require y/y growth in 2HF22. Our $10 target assumes multiple expansion to 5.75x based on 5.0x for the core broadcasting business and 10x for the higher-margin content business. Even with no multiple expansion, we believe the shares can reach $7 driven by EBITDA growth and FCF.
KEY POINTS We believe the advertising market remains healthy across the board, and CJR was optimistic in the Q1 outlook on the call. We expect the advertising market to remain healthy for the coming quarters, and CJR will benefit from a strong simulcast content slate and digital initiatives including dynamic ad insertion on StackTV on demand. Overall we have increased our F22 revenue estimates due to increasing our Q1 tv advertising estimate to +13% from +8% and our total Q1 tv revenue is $430M, in line with Q1 2020 revenue before the pandemic. Offsetting our slightly higher tv estimates, we have increased our tv content costs to +10% for the year (management guided to low double digits), and we have increased our corporate and other to ~$10M per quarter based on management's outlook. The net impact decreases our full year EBITDA by $12M to $564M. CJR clarified the company will see an incremental $50M of Canadian programming expenditure (CPE) over the next two years as the CRTC is requiring broadcasters to make up the missed expenditure during the 2020 production hiatus. Offsetting the higher CPE, CJR disclosed the company realized a venture capital gain relating to investments in Relay Ventures/TheScore and has received USD $35M in cash in September. CJR remains focused on partnerships to license US content into Canada. We believe the recent Discovery+ marketing partnership announced by CJR includes a multi-year extension to CJR's existing content agreement with Discovery. We believe CJR's investments in its own content continues to shift these license agreements to twoway mutually beneficial deals and CJR is now becoming both a customer and supplier of the US media partners.