Corus Entertainment Inc

Corus Entertainment Inc (TSX: CJR.B) is a media and content company that operates in the diversified media industry. The company has two business segments, which includes television, and radio. The television business segment has a portfolio of television channels. The radio business segment controls a number of stations that cater to both the music, news, and talk radio markets.

Why Investor’s Should Book Profit?

• Sequentially falling operating margin and net margin: On a sequential basis, the company failed to maintain its pace, resulting in poor operating margin and net margin performance, indicating that the company is under pressure. Even in the most recent disclosed data, its operating margin was lower at 9% compared to an industry median of 18.4%, and its net margin was 6.6% compared to 8.2%.

• Drastic fall in free cash flow: In Q4 2021, the company's free cash flows plummeted to CAD 35.2 million from CAD 87.4 million the previous corresponding quarter. Higher payments for program rights in the current year due to COVID-19-related programming delays and cancellations, were the main causes of the drop.

• Weak liquidity profile: In Q4 2021, the company's current ratio stood at 0.72x against the industry median of 1.35x. This lower ratio against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.

• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Furthermore, it rose on the sequential basis. Currently, its Cash Cycle is at 88.7 days compared to an industry median of 16.8 days.

• Exhausted technical indicators: Since April 2021, the stock is consolidating in a very tight range. Additionally, it is trading below its long term EMAs of 50 days and 100 days, Trading below long term averages is not considered a healthy sign and this may reflect the weakness in the prices.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

In the recently reported numbers, the company witnessed higher revenue from each segment, which was a positive aspect, but it failed to convert that in its healthy bottom line. The company reported lower net income mainly due to rise in general and admin expenses. It also failed to keep up with the competition, with lower operating and net margins on a sequential basis, as well as weaker margins when compared to the industry median, indicating that the company is under pressure. Furthermore, the company's free cash flows have decreased dramatically, and the liquidity ratio is on the low side; it is also slightly leveraged, indicating that the balance sheet is not in a good shape. Furthermore, it holds a longer Cash Cycle (Days), meaning that the firm takes longer to turn its inventory into cash. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 5.63 on November 2, 2021. 

Ensign Energy Services Inc

Ensign Energy Services Inc. (TSX: ESI) is a Canada-based company which offers oilfield services include drilling and well servicing, oil sands coring, directional drilling, underbalanced and managed pressure drilling, equipment rentals and transportation. The company provide these services in Canada, the United States and internationally.

Why Investor’s Should Book Profit?

• Sequentially degrading operating matrix: The corporation failed to maintain its pace on a sequential basis, resulting in a weaker operational matrix. The company's gross margin, EBITDA margin, and net margin are all showing signs of weakening, indicating that it is under severe pressure.

• Clocked lower adjusted EBITDA: In Q2 2021, the company recorded lower adjusted EBITDA of CAD 45.6 million, a 21% decline from adjusted EBITDA of CAD 58.1 million in the previous corresponding period.

• Higher net losses: Although the company’s revenue increased 9% compared to the revenue in Q2 2020, but it failed to optimize on the bottom line. In Q2 2021, the company expanded its net losses to CAD 52.3 million against CAD 17.1 million in pcp.

• Weak liquidity profile: In Q2 2021, the company's quick ratio was 1.26x compared to the industry median of 1.73x, while the current ratio stood at 1.59x against the industry median of 2.03x. These lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.

• Heavily leveraged: The company’s debt to equity ratio at the end of June 2021 stood at 1.08x, which was higher than the industry median of 0.39x. Additionally, its % LT Debt to Total Capital stood at 51.7% against the industry median of 19.3%. These factors imply higher balance sheet risks.

• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 101.4 days compared to an industry median of 86.0 days.
  

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Higher revenue was a favorable component of the company's recently announced numbers, but it failed to translate it into a strong bottom line. The company's Adjusted EBITDA was lower, while its net losses were greater. Furthermore, the resurgence of the delta variant is causing more havoc. Moreover, the company's liquidity ratios are poor, and it is significantly leveraged, implying that the balance sheet is vulnerable. It also has a prolonged Cash Cycle (Days), which means it takes longer for the company to convert its inventory into cash. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 2.06 on November 2, 2021.

One-Year Technical Price Chart (as on November 2, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.