Corus Entertainment Inc CJR.B Q1/10 Results Reaffirm a Gradual Advertising Recovery is Under Way

admin — Thu, 14 Jan 2010 17:13:28 +0000

Corus Entertainment Inc. (CJR.B) – $19.59 – Q1/10 Results Reaffirm a Gradual Advertising Recovery is Under Way
Sector Perform, Average Risk, Price Target: $22.00
RBC CM made a number of changes to its forecast to reflect: (i) slightly higher revenue growth assumptions for radio in H2/10; (ii) slightly higher expense growth assumptions for television; (iii) higher interest expenses in F2011E; and (iv) higher depreciation expenses following the move to Corus Quay. RBC CM raised its F2010E and F2011E EBITDA estimates change from $261MM and $262MM, respectively, to $258MM and $265MM. Sequential YoY improvement in Q1/10 for radio advertising (declining -6%
YoY versus -12% in Q4/09) and specialty television advertising (flat YoY versus -10% in Q4/09) re-affirms that a gradual recovery in advertising spending is under way in Canada. RBC CM believes the company remains on track to meet its previous F2010 EBITDA guidance of $255MM – $270MM (versus our estimate of $258MM and $252MM in F2009) despite absorbing $4MM in Part II fees in F2010. Although television is relatively predictable, visibility is still limited on the magnitude of the recovery in radio advertising in H2/10 and F2011. RBC CM’s current forecast and $22 target price factors in a gradual recovery scenario, which assumes an improvement in radio revenue growth from -10% in F2009 to -2% in F2010E and +3% in F2011E.

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.

TSX Commentary » Corus Entertainment Inc.

Corus Entertainment Inc CJR.B Q1/10 Results Reaffirm a Gradual Advertising Recovery is Under Way

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