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Corus Entertainment rises on Q1 results

CJR.B stock

Shares of Corus Entertainment (Corus Entertainment Stock Quote, Chart, News, Analysts, Financials TSX:CJR.B) are near the top of the TSX gainers list today after the company reported its first quarter earnings.

In the first quarter of 2024, Corus posted earnings of $131.7-million on revenue of $431.2-million, a topline that was down seven per cent from the same period a year prior.

“Our television advertising revenue results were in-line with our first quarter outlook,” CEO Doug Murphy said. “The impacts of industry-wide advertising market weakness have been partially offset by reductions in programming and operating costs. While visibility as to the timing of the advertising recovery remains limited, our supply of premium scripted content will return to normal in the back half of this fiscal year. A standout schedule of premium scripted content will begin to roll out on Global in February. The long awaited normalization of our programming supply is foundational to our Video First strategy that aggregates premium video on multiple digital streaming platforms. Our disciplined focus on reducing expenses across the business is evident in the first quarter results, delivering a lower cost base and improving operational efficiencies as our focus on debt repayment remains a priority.”

At press time, shares of Corus Entertainment were up 8.2 per cent to $0.79.

An interesting take on CJR.B stock was posted to Twitter by user Deep Value Situations January 11, who argued that the stock is harder to value than most and might present an opportunity because of that disconnect. (Cantech Letter has no affiliation with the account).

“Given the intangible nature of its asset base, Corus Entertainment $CJR.B is subject to quirky accounting rules leading to massive mismatches between reported earnings and actual FCF generation. To put it into context, Corus generated over CA$1.5bn in free cash since 2018 compared to reported cumulative reported IFRS losses of CA$1.7bn (due to “excessive” goodwill and intangible asset impairments and accelerated D&A policies). Needless to say, Corus has always screened quite poorly in the traditional sense.

Against a market cap of CA$150m, Corus has decent optionality in terms of value realization. Its properties (at cost) is double the market cap and the stagnant (yet profitable) radio business could be offloaded at around book value (c. CA$ 50m pinning at less than 4x stable earnings). Corus could also be in the crosshairs for a takeover by larger peers such as Rogers Communications ( $RCI ) who already successfully acquired the voting owners of Corus (Shaw Communications) in early 2023.

Corus continues to contend with subscriber attrition in its linear platforms as it grows and migrates subscribers to its digital and streaming offerings. The subscriber conversion inflection will probably still take a couple of years but the normalization in advertising revenues with its massive operating leverage will more than suffice and support the investment case vis-a-vis current valuation levels (as the ad-cycle turns and guild strikes have now been sorted).

I believe normalized run-rate FCF (FY24/25) to be at least CA$150m – CA$200m which for the time-being will be channeled to de-lever the geared balance sheet. The target of 2.5x net debt/”segment profit” should be reached by FY25 whereby the dividend and buy-back scheme could be reinstated. Total payback yields could be as high as 50% from current price levels. The debt is decently hedged and the company has no maturities until FY27/28. The revolver of CA$300m remains undrawn and could be productively utilized at a later stage in buying back (or even redeeming) some of the unsecured notes trading at steep discounts to par.

All in all, I think the upside potential asymmetrically trumps any material downside from current price levels (stock is down almost 70% in the last year).”

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