Corus Entertainment Inc. (CJR.B): $20.13 – Downgrading to Sector Perform Based on Relative Returns

admin — Thu, 07 Jan 2010 18:09:57 +0000

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.

ACM.A-TSX Improving Ad Market Trends / Tone

admin — Thu, 01 Oct 2009 01:41:06 +0000

Encouraging signs continue to come in that ad conditions are stabilizing, as
evidenced by Corus’ investor day conference held in Toronto Tuesday. Tone
remains optimistic as we head into F2010, and we believe Astral will benefit
from these improving conditions.
At Corus’ investor day, management indicated that growth in pay TV and
specialty growth is expected to pick up in F2010 due to the strong slate of
shows in the pipeline and renewed advertiser interest. This portends well for
Astral, and we continue to expect growth to track strongly into F2010.
Radio continues to challenge Astral, but recent commentary from Corus’
investor day suggests that conditions are stabilizing. Auto and telecom ad
spend, which dropped off dramatically during the downturn is coming back,
positioning Astral for a recovery in F2010.

TSX Commentary » Astral Media Inc.

Corus Entertainment Inc. (CJR.B): $20.13 – Downgrading to Sector Perform Based on Relative Returns

ACM.A-TSX Improving Ad Market Trends / Tone