Corus Entertainment Inc T.CJR.B

Scotia (B)??

[SunsetGrill]

Media

Corus Entertainment Inc.

• CJR.B-T: C$2.23
• Target: C$4.00
• Rating: Sector Perform

Corus Faced a Frigid Environment in Q4, Focus is on Next Quarter

OUR TAKE: Slightly Negative. Corus reported Q4F22 results which were slightly below an already reduced consensus view. The drop in advertising revenues was more extreme than our expectations due to a combination of a weakening economy and tight supply chain for some of the company’s customers. We expect the pressure from the continued increase in Cord Nevers and lower TV viewership from existing cable subscribers to exert pressure on traditional broadcasting business models. Managing cost will be key to be able to have enough time to transition the company more towards digital sales and online viewing. CJR is hosting Q4 earnings call at 8:00am ET, see webcast here.

Revenue was lower than expectations coming at $340M (-6% y/y) vs. our expectation of $350M (-3% y/y) and consensus of $344M. Adjusted EPS was a loss of 0.08$ vs our estimate of -$0.01 and consensus of $0.01. EBITDA was $56M vs. our estimate and consensus of $70M due to the impact of losing high margin advertising dollars.

TV advertising suffers a significant drop, our focus is on how Netflix will impact the TV advertising environment with their imminent launch. Netflix and Disney have recently announced, after many years of internal debate, that they will launch an ad-supported service in addition to their ad-free service to be able to capture the lower end of the market. While it is still very early to draw conclusions about the impact of this new direction on add spending, it is possible that a portion of current TV spending could be diverted from conventional and specialty TV to Netflix and Disney. Netflix offers a compelling mix of data on the profile of its viewers given what shows they are watching and viewing habits. Dynamic add insertion into this pool of clients offers an enticing positioning for agencies in order to target specific TV viewing groups. In their most recent launch event, Netflix indicated that demand for advertising on their platform was very strong and by looking at their Canadian pricing tier we believe demand in Canada was quite strong.

For the quarter advertising revenue declined by 12% y/y vs. our estimate of -9% y/y. Subscriber revenue was at $128M, growing by 2% y/y vs our expectations of +1%. Merchandising and other revenue was $36M (+4% y/y) vs. our estimate of $40M (+15% y/y). Total TV revenue was $314M (-6% y/y) vs. our estimate of $325M (-3% y/y) and consensus of $317M. TV EBITDA was $59M (down 46% y/y) vs. our estimate of $77M and consensus of $74M.

Radio revenue was flat y/y, but overall results remain pressured from the pandemic. Radio revenue was $25M (0% y/y) vs. our estimate of $24M (-4% y/y) and consensus of $26M. EBITDA was $2M (-60% y/y) vs our estimate of $3M. Radio EBITDA margin came in at 7%, vs our estimate of 13%.

Exhibit 1 - Q4F22 Financial Results

Source: Scotiabank GBM estimates; company report

 

 

 

Analyst TeamLink to ScotiaView

• 
  Maher Yaghi, CPA, CFA

  Analyst | 437-995-5548

  Scotia Capital Inc. - Canada

  View Details
• 
  Ian Fu

  Associate | 416-945-4249

  Scotia Capital Inc. - Canada

• Pertinent Data

Valuation: 4.5x EV/EBITDA on NTM EBITDA 1 year forward
Key Risks: Macroeconomic slowdown; Decline in ad spending; Subscriber pressure on streaming platforms; Regulatory Risks on TV and Radio operations
Rating	Sector Perform
1-Yr. Target	C$4.00
CJR.B-T	C$2.23
Div. (NTM)	C$0.24
Div. (Curr.)	C$0.24
Yield (Curr.)	10.5%
Quant Ranking	4

Capitalization
Market Cap. (M)	C$456
Net Debt + Pref. (M)	C$1,374
Enterprise Value (M)	C$1,830
Shares O/S (M)	205
Float O/S (M)	184

Volume and Closing Price for CJR.B-T

Source: FactSet.

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