Q2/FY18 financial results are in for specialty TV and radio company Corus Entertainment, with the company reporting an EBITDA of $112.8 million, beating the consensus estimate by 15.6 per cent and Galappatthige’s estimate by 13.5 per cent. But it’s the flat revenue stream and poor visibility that are problematic to the analyst.
“While the stock unsurprisingly rebounded following the Q2 results, particularly given the steep downswing in the run up to the quarter, the outlook for TV ad trends in H2 remains difficult to call,” says the analyst.
“While no specific tracking for Q3 was provided, we certainly sensed some cautiousness around the comments. Given the relatively tough base in H2/17 (where Corus actually stabilized ad revenues), we have conservatively assumed ~5 per cent decline in TV ad revenues in H2,” he says. “Management also alluded to lower Content revenues in H2 due to timing. Finally, Q3 is likely to see higher programming costs due to some of the delayed spend (post Olympics) hitting the quarter. Factoring in the above, we have lowered our estimates and now expect a 9 per cent decline in corporate EBITDA in H2/18.”
Galappatthige says investors should expect to see a 50 to 70 per cent dividend cut along with the upcoming Q3 results or, if no dividend cut, then he sees leverage move up to 3.6x by the end of fiscal 2019.
The analyst has lowered his FY 2018 and 2019 EBITDA estimates for Corus to $547.8 million (down from $553.1 million) and $508.7 million (down from $535.4 million), respectively.
Galappatthige’s price target for Corus has been lowered from $9.00 to $7.00, representing a projected return on investment of negative 2.2 per cent.
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