TDRecommendation: BUY
Risk: HIGH
12-Month Target Price: C$5.00
12-Month Dividend (Est.): C$0.24
12-Month Total Return: 143.7%
Market Data (C$)
Current Price C$2.15
52-Week Range $1.93 - $5.89
Mkt Cap (f.d.) ($mm) $428.9
Float Cap ($mm) $406.8
Current Dividend $0.24
Dividend Yield 11.2%
Avg. Daily Trading Vol. 1,585,274
Financial Data (C$)
Fiscal Y-E August Shares O/S (f.d)(mm) 199.5
Float Shares (mm) 189.2
Net Debt/Total Cap 60.0%
Estimates (C$) Year 2021A 2022A 2023E 2024E EBITDA ($mm) 524.6 443.6 402.8 434.7 EBITDA ($mm) (old) – 457.3 437.2 488.2 EPS (f.d.) 0.88 0.52 0.39 0.55 EPS (f.d.) (old) – 0.59 0.55 0.76 EPS (f.d.) Quarterly Estimates (C$) Year 2021A 2022A 2023E 2024E Q1 0.38 0.37 0.25 – Q2 0.18 0.08 – – Q3 0.21 0.15 – – Q4 0.10 (0.08) – – Valuations Year 2021A 2022A 2023E 2024E Est. EV/EBITDA 3.6x 4.0x 4.0x 3.3x
Event Q4/22 results Impact: NEGATIVE Q4/22 revenues were largely in line with (recently lowered) expectations, but programming cost inflation (including CRTC-mandated catch-up payments on CPE) was worse than expected, which caused a meaningful miss on EBITDA (see page two). We have adjusted our forecasts to assume both a slower recovery in revenues postrecession (TV advertising growth assumptions shown in Exhibit 2) and continued near-term headwinds for opex. We believe that management will be able to reduce costs below our current estimates (including U.S. broadcast partners reducing volumes delivered during a recession, and the CRTC formula on CPE as a percentage of trailing revenue), but we believe it is prudent to err on the side of caution with our EBITDA forecasts until we see evidence of improved opex trends. Our FCF forecasts are far less affected than EBITDA owing to timing issues related to working capital and program purchases (combined cash outflows for W/C and production burn were $194 million in 2021/2022 combined — detailed FCF estimates shown in Exhibit 5). Our target price remains at $5.00 based on an unchanged multiple of 5.0x EBITDA (target equates to a 20% yield on 2023E FCF and 22% on 2024E FCF). Given the passage of time plus likely temporary recession impacts on 2023E EBITDA, we are now basing our target on 2024E EBITDA, with a 15% time-value and uncertainty discount applied. TD Investment Conclusion We are maintaining our BUY rating because historical and future FCF generation is structurally undervalued (47% yield implied on 2023E FCF). Share buybacks might slow/stop until macro visibility improves, but dividends will still get paid and debt will keep declining, in our view, plus there are no bond maturities to worry about until 2028. We continue to believe that strategic buyers and/or private equity players could place a much higher value on Corus' FCF than what the current share price implies (pending potential regulatory reform). On page two, we discuss why Netflix selling advertising is yet another overblown fear for this stock (similar to subscription revenue falling off a cliff, or an inability to renew and extend content supply deals)
Details We believe Corus will have no problem selling its digital advertising inventory (on STACKTV and other platforms, including the upcoming launch of PlutoTV), despite advertising being added to Netflix and other streaming services soon. There is robust demand from advertisers for premium digital video eyeballs/inventory, with share gains likely from other categories of digital advertising (Exhibit 1 shows that digital is a way bigger pool for Netflix to swim in than linear TV).
Results from the quarter are shown in Exhibit 3, and we outline the following key takeaways: • Total revenue of $340mm (-6% y/y) versus TD/consensus of $341mm/$343mm. Adjusted EPS of ($0.08) versus TD/consensus of ($0.01)/$0.01. • Total EBITDA of $56mm (-45% y/y) versus TD/consensus of $70mm/$71mm. • Television EBITDA of $59mm, compared with our estimate of $74mm (consensus $74mm). Although revenue slightly beat our estimates, Television operating expenses were ~$16mm higher than we had anticipated. Management noted on the call that it is “leaving no stones unturned” when it comes to looking at the cost structure and has been doing so before the advisory on complex macroeconomic conditions issued on September 9. Corus took a non-cash impairment charge of $350mm in the Television segment in Q4/22. The impairment charge was not against any particular assets, but against the Television segment as a whole. • Advertising demand for Q1/23 has stabilized and is better than what was experienced in Q4/22. However, advertising demand continues to be volatile. We have increased our advertising revenue growth estimates to -9% y/y in Q1/23 (previously -13%) and have maintained our estimates for the remaining quarters in F2023. Forecast TV advertising revenues are provided in Exhibit 2. • STACKTV subs were relatively flat in Q3/22 and Q4/22, which was due to seasonality. Management has seen an uptick in STACKTV subscriptions as the summer ended. New Platform Revenue and Optimized Advertising revenue have continued to grow. Optimized Advertising Revenue now represents 50% of total TV advertising revenues. • Radio EBITDA of $2mm compared with our estimate of $5mm (consensus: $4mm). Revenue results were slightly below our estimates in spite of strong local advertising revenues. Management has not heard of any updates with regard to updated regulations for the radio market from the CRTC. • Corus anticipates ~$50mm worth of CPE spend across 2022–2024 as a catchup from lower spend in FY2020. CPE catch-up costs as a result of the CRTC decision in August 2021 were ~$19mm in FY2022. • Management noted that any decisions on the dividend are made by the Board, but also stated that Corus continues to maintain strong free cash flow. This strong free cash flow, as seen in Exhibit 5, should be able to support the current dividend, in our view