TD comment on dividend decisionEvent
Bank leverage covenants were amended and the March 15 dividend declaration deadline is three weeks away (decision was deferred with Q1/23 results on January 13).
Impact: MIXED
Based on recent commentary from various media companies, we do not perceive much improvement in TV advertising demand since the Corus Q1/23 call.
AMCX shares gapped up 32% on Friday, following its results, but that seemed to be based more on the opex outlook, as opposed to improving revenue trends. AMC's advertising revenue fell 12% in Q4/22, and management signalled that it is expecting a soft advertising market throughout 2023. We hear some talk about stabilization from various players; so, may be things are not getting even worse than we saw in fiscal Q1 (largely calendar Q4), but there is a risk that the Board at Corus needed to see noticeable gains to not reduce the dividend. The dividend yield has been near or above 10% since mid-September, and the company's bonds are trading well below par; so we believe this dividend decision by the Board goes beyond just the revenue and FCF trends in the business. Even if it is highly confident that EBITDA and FCF will improve in 2024 (and then may be even further in 2025 once the CRTC implements the new broadcasting act guidelines), it might still decide to reduce the dividend because it sees better options for some of this cash (~$50 million per year — see page two for options).
TD Investment Conclusion
Some investors might still not be aware of the dividend risk; so we cannot rule out a temporary dip if we get that type of announcement between now and March 15.
We would view this as a great buying opportunity owing to the other potential uses of that cash, plus the fact that the dividend has no impact on any of the potential mediumlong-term M&A upside catalysts (asset sales to strategic players pending regulatory changes, or privatization). The FCF yield remains incredibly low, in our view (34% on 2023E; 49% on 2024E), and we maintain our BUY rating.