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Corus Entertainment downgraded at National Bank

CJR.B stock

Following the release of its second quarter results, National Bank Financial analyst Adam Shine has downgraded Corus Entertainment (Corus Entertainment Stock Quote, Chart, News, Analysts, Financials TSX:CJR.B).

On April 12, Corus reported its Q2, 2024 results. The company posted a Net Income loss of $9.78-million on revenue of $299.5-million, a topline that was down 13% over the same period a year prior.

“We delivered a strong quarter of free cash flow generation that was directed towards reduction of our term loan facility as we maintained focus on streamlining our operating model,” CEO Doug Murphy said. “Television advertising revenue for the second quarter was in line with our expectations. Importantly, premium scripted content returned to our networks and platforms in February with promising early audience results. That said, visibility in the advertising market remains limited despite the normalization of our program supply. Demand creation is our priority to monetize these audiences while we concurrently deploy a disciplined focus on expense reduction to improve operational efficiency.”

The analyst says the company is facing headwinds.

“Corus sees TV ad sales and program amortization declining 10 per cent to negative 15 per cent in Q3,” Shine wrote. “Given an easy comp of negative 12.1 per cent last year and the fullness of the belated TV schedule finally coming together, we had expected TV advertising to return to modest growth of 2 per cent in Q3 and 8 per cent in Q4 (down 9.5 per cent Q4/23, down 14.2 per cent Q4/22). In light of evolving cyclical pressures exacerbating secular challenges and management’s weaker guidance, we need to materially temper our H2 expectations. Ongoing cost-cutting efforts and lower than anticipated program amortization help offset some of the top-line reductions we had to make, but this is looking increasingly structural and disconcerting.”

As reported by the Globe and Mail, Shine April 15 chopped his rating on CJR.B from “Outperform” to “Underperform” and lowered his price target on the stock from $1.70 to $1.30.

“Ad sales fell 11.9 per cent (telegraphed to be down by high single to low double digits) due to macro backdrop, lower audiences & Hollywood strikes which resulted in the delay of the TV season, which slowly came together from late January to early March,” Shine added. “Subscriber revs fell 5.5 per cent also due to strikes & issues with a distributor in the Maritimes. Other revs down 58.4 per cent but PF down 43.5 per cent when adjusting for sale of Toon Boom Animation, as a result of fewer deliveries, less service work, and a multi-year licensing deal in prior year for Corus Studios properties. Amortization of TV program rights fell 17 per cent (drop was telegraphed to be similar to TV ad sales) with this and other cost-saving efforts (employee expenses down 7 per cent, G&A down 16 per cent) mitigating some of the top-line pressure.”

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