TVA Group Inc. 

TVA Group Inc. (TSX: TVA.B) is a Canada based communications company that operates in three segments including Broadcasting & Production segment which includes the operations of TVA Network, marketing of digital products, commercial production services and distribution of audiovisual products. 

Key Updates:

• Decline in debt component: The group has lowered its debt component from CAD 44.846 million in FY19 to CAD 29.227 million in Q3FY19, which is commendable, amidst the current tepid business scenario. A decline in the debt component would lead to lower finance costs and support to the bottom-line. Notably, the group reported financial expenses of CAD 1.969 million in 9MFY20, significantly lower than CAD 3.042 million in pcp.

Source: Company Reports

• Bullish Indicators: The stock of TVA.B appreciated ~26% and ~59% in the last three months and six months, respectively and at the last closing price, closed above the 100-days, 150-days and 200-days, simple moving average (SMA), indicating a bullish price trend.

• Sequential growth: The operations have been impacted by the continued shutdown due to the restrictions imposed by the Government on account of COVID 19 pandemic. However, the group has reported a revival in its operations during Q3FY20, which has resulted in a sequential improvement in revenue (CAD 119.5 million versus CAD 103.9 million in Q2FY20). Moreover, the group reported a significant surge in gross profit, which stood at CAD 43.4 million, as compared to CAD 22 million in Q2FY20. The group reported an operating income of CAD 13.3 million, as compared to a loss of CAD 0.9 million in Q2FY20.

Q3FY20 Financial Highlights:

• The group announced its quarterly results, wherein the group posted revenue of CAD 119.537 million, slightly lower than CAD 125.618 million in the previous corresponding period (pcp).
• The quarter was marked by an increase in Purchases of goods and services (CAD 76.167 million versus CAD 61.348 million in pcp), and a higher operational restructuring costs and others (CAD 2.734 million versus CAD 0.392 million in pcp), partially offset by significantly lower Employee costs (CAD 20.007 million versus CAD 33.129 million in pcp). Income before tax expense and share of loss (income) of associates stood at CAD 11.871 million versus CAD 18.556 million in pcp.
• The group reported a net income of CAD 8.407 million, significantly lower than CAD 13.368 million in Q3FY19.
• The group reported a cash balance of CAD 2.925 million, while total assets were recorded at CAD 564.281 million.           

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Further outbreak of COVID 19 pose a threat to the Film Production and Audiovisual Services, due to the restrictions imposed by government authorities to curb its spread. Thus, the imposition of further restriction could dampen the company’s overall performance.

Stock Recommendation:

The Production & Distribution segment has resumed its activities in the recent past and continuing with two co-productions with New Zealand. Moreover, the group is seeking for diversifying its revenue base and is expanding its international presence, expected to be benefited from the growing customer’s preferences for original content programs. The stock of TVA.B is available at an EV to EBITDA of 1.5x on next twelve months basis, significantly lower than the industry (Media & Publishing) median of 7.8x. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the current closing price of CAD 2.19 on January 22, 2021.

TVA.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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