TSX Commentary

Corus Entertainment Inc. (CJR.B): $20.13 – Downgrading to Sector Perform Based on Relative Returns
Sector Perform (prev: Outperform), Average Risk, Price Target: $22.00
RBC CM is downgrading Corus to Sector Perform as it believes there are more attractive risk-adjusted returns elsewhere in the Canadian media sector. Since the end of June 2009, the shares have appreciated +36% (and +42% in 2009). The shares now trade at a FTM EV/EBITDA multiple of 8.7x, which is in the middle of the historical range of 7.0x – 10.5x. RBC CM believes the following sources of NAV option value are now more adequately reflected in the shares: (i) continued merchandising momentum; (ii) the launch and/or re-branding of several television channels; (iii) the potential to monetize relative PPM ratings gains in radio and television; and (iv) a pay television tailwind due to accelerated digital penetration at Shaw.

• Recommend switching into Astral – RBC CM recommends a switch from Corus into Astral, reflecting: (i) relative returns following the lag in Astral shares since the end of June 2009 (up +13%); (ii) the ~0.3x discount that Astral now trades at relative to Corus on a FTM EV/EBITDA basis (versus a premium since 2007); and (iii) greater potential for debt repayment in F2010E for Astral, which has a positive impact on equity value in our NAV.

Astral Media (ACM.A): $33.68 – Upgrading to Outperform; Increasing Target to $41
Outperform (prev: Sector Perform), Average Risk, Price Target: $41.00 (prev. $40.00)
Although Astral shares appreciated +36% in 2009, the shares have more recently lagged, returning +13% since the end of
June 2009. The shares are trading at a FTM EV/EBITDA multiple of 8.4x (or 8.1x based on consensus), which is near the low end of the historical range of 7.5x – 11.0x. We believe an attractive valuation and an improving ad environment make the risk-adjusted return on the stock very attractive. RBC CM’s key buy signals continue to point to a strengthening floor under the sector. Ad spending in Canada is showing improvement with Q3/09 likely representing the trough for this cycle. Although RBC CM expects a gradual recovery in ad spending in 2010, it sees the potential for 20%+ total returns for several names (including Astral) in the sector given current valuations and significant operating leverage (due to cost-cutting) to modest revenue growth.