RE:TD Securities Still a good long term hold imo. Likely add more at these prices when I can.
Event
Q3/22 results announced on June 29.
Impact: NEGATIVE
As we detail on page two, Q3/22 revenue beat our expectations, but this did not
flow through to a beat in EBITDA, given the rising costs during the quarter. We
have lowered our EBITDA estimates for the rest of 2022 and for 2023 in order to
reflect both elevated costs and the uncertain environment. Our base-case forecasts
do not include a recession, but we still assume negative TV advertising revenue
growth owing to several categories that remain challenged by post-pandemic supply
or demand imbalances. Our target price declines to $6.50 from $7.50 using an
unchanged multiple of 5.0x 2023E EBITDA, which equates to an FCF yield of 19%
(with F2023 starting in nine weeks, we have removed the 5% time-value discount).
Our recession scenario forecasts would point to a target price of $5.00 using 5.0x
EBITDA, but we would argue that trough cycle earnings would justify a slightly higher
valuation from forward-looking investors. Using 5.5x would produce a target value of
$6.00 (equivalent to an FCF yield of 18% on the recession scenario 2023E).
TD Investment Conclusion
With the threat of a recession and no visible near-term catalysts, we gave some
consideration to a downgrade. However, when we considered both the recent
weakness in the stock (down 21% in the past month) and the upside potential and
lofty FCF yield even in our recession analysis, we still conclude that the risk/reward
is very attractive for patient investors. The company continues to buy back stock
(~5.3 million shares at ~$4.45/share from mid-January through the end of May),
and the dividend yield of 6.8% is arguably sufficient as a baseline return even if it
takes a few months or quarters for macro and market conditions to turn around. We
are maintaining our ACTION LIST BUY rating. Management emphasized (Exhibit 1)
that ~$944mm over the last four years has been put towards debt reduction, share
repurchases, and dividends. This is greater than the current market capitalization of
$717mm (more on this topic on page two).