Corus Entertainment Inc

Corus Entertainment Inc. (TSX: CJR.B) is a media and content company operating in three segments: television, radio and content. Television portfolio has 34 specialty television channels and 15 conventional television stations. Radio portfolio owns 39 radio stations. The company creates world-class content in more than 160 countries across the world.

Key Highlights

• Net income grew by 18.8% in the latest quarter: In 4Q 2020, adjusted net income increased by 18.8% to CAD 33.1 million on Y-o-Y basis. Although the company posted lower revenue, which was down by 15.7%; it managed to curtail the operating expenses, which resulted in a growth in net income.
• Television segment, the highest contributor in the group’s operating margin, recoded an operating margin growth of 140 bps to 33% in the fourth quarter of 2020 against the year over period.
• Reduced Debt: The Company repaid bank debt of CAD 229.5 million and amortized CAD 4.1 million of deferred financing charges. We expect that this will help in bringing down the Interest cost.
• Ample Liquidity: As of August 31, 2020, the company had a net cash balance of CAD 45.9 million and approximately CAD 300.0 million under the revolving facility. The company believes that its cash from operations and the credit facility is sufficient to fund its operations for the next 12 months.
• Positive Free cash flows: Despite this challenging time when the business is suffering due to lower advertising revenue, the company managed to generate the free cash flow of CAD 296.2 million in FY2020 against CAD 310 million in FY2019 and featuring a free cash flow yield of 33.3%, which is significantly higher and provide a greater margin of safety.

Source: Company

• An Income Play: The company is offering a lucrative dividend yield of 6.47%, which is significantly higher amid lower interest rate environment. Also, the company has a track record of consistent dividend payment over the past ten years.

4QFY20: Financial Highlights

Source: Company

• In 4Q 2020 the company has posted a revenue of CAD 318.3 million down 15.7% on a Y-o-Y basis. Lower revenue was driven by a decline of 25% in advertising revenues.
• Television segment profit margin in 4Q 2020 was 33% vs 31.6% a year-before period. On a full year basis, television segment margin stood at 36.1% against 37.1% in FY2019.
• Radio segment profit margin in 4Q 2020 was 6.2% vs 20.5% a year-ago period. For FY20, the margin stood at 15.6% against 24.3% in FY2019.
• Consolidated segment profit in 4Q 2020 decreased by 14%. For FY20, the company reported a decline of 13.5% respectively
• In 4Q 2020, adjusted net income grew by 18.8% to CAD 33.1 million on Y-o-Y basis. For FY20, the Adjusted net income has recorded a decline of 12.7% to CAD 158 million.

Risks associated to investment

The impact of Covid-19 and measures to prevent its spread has affected the company in many ways. Restrictions have been reintroduced in some provinces to tackle recent surges of COVID-19 cases which may impact various sectors and businesses. Most significantly, advertising sales is likely to be materially affected by businesses shutdown. 

Stock recommendation

Corus performance in the fourth quarter of FY20 was moderate, given the abnormal working environment. Further, the company has significantly higher free cash flow yield of 33.3%, which provides a greater margin of safety to the existing and the potential shareholders and ensures that the company has an adequate fund to pass through this challenging times. More importantly, the company is offering a lucrative dividend yield of 6.47%, with a consistent track record of dividend payment. Also, the high yielding stock with decent fundamentals and history of consistent dividend payment tend to remain in the investor’s limelight, especially for income-seeking investors. On the valuation front, the stock is available at forward EV to EBITDA multiple of 4.3x against the industry (media and publishing) median of 7.5x. Therefore, based on the above rationale, we have given a “Speculative Buy” rating at the closing price of CAD 3.71 on 23 October 2020.

CJR.B daily technical chart. Source: Refinitiv (Thomson Reuters)

Disclaimer

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