TC Transcontinental Inc.

TC Transcontinental Inc. (TSX: TCL.A) operates in packaging and printing segments across North America and Canada. The group is also positioned as the leading Canadian French-language educational publishing group.

Key Highlights:

• Stable Dividend distribution: The company reported a consistent dividend payment over the years, backed by stable cash flows, which is a key positive. Since 1993, the company reported an 11% CAGR in its dividend distribution. Notably, in the first half of FY21, the group reported a dividend payment of CAD 39.2 million, higher than CAD 38.7 million, a year ago. Moreover, the stock of TCL.A carries a dividend yield of ~3.8%, which looks decent considering the current interest rate scenario.

Five-year Dividend Distribution, Source: REFINITIV

• Issuance of Senior Notes: On July 07, 2021, the company reported the issuance of CAD 250 million of senior unsecured notes, with an interest rate of 2.28% due in July 2026. The group would utilize the above funds for repayment of its existing borrowings.

• Strong Growth profile: In the recent past, the company identified the growth segments within the printing and packaging segment and emphasized on better revenue mix in order to improve its profitability and margins, which is a key positive. The group is focusing on improving the share of its growth segment to ~80% in the coming days, from the existing share of 68%.

Source: Company Presentation

Q2FY21 Financial Highlights:

• A announced its quarterly result, wherein the company reported revenue of CAD 623.3 million, as compared to CAD 625.1 million in the previous corresponding period (pcp). This slight decrease was mainly due to the negative impact of the exchange rate variation on the Packaging Sector, partially offset by organic growth in the three sectors.
• Operating earnings stood at CAD 55.9 million, climbed from CAD 44.1 million in pcp. The period witnessed a lower operating expense (CAD 516.3 million v/s CAD 520.8 million in pcp) and marginally lower Depreciation and amortization (CAD 50.6 million v/s CAD 53.2 million in pcp).
• Net earnings stood at CAD 35.6 million, increased from CAD 25.8 million in pcp, supported by lower net financial expenses (CAD 9.5 million v/s CAD 11.7 million in Q2FY20).

 Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The group might witness pressure from elevated raw material prices, which may impact the company’s margin and cash flows. Notably, raw materials prices constitute a major chunk of the expenses.

Valuation Methodology Illustrative: Price by Cash flow  

Stock Recommendation:

The group has a solid balance sheet and ample opportunities to enhance its business prospects through meaningful acquisitions. Moreover, the company’s constant focus on increasing the share of the profitable segment has resulted in a constant increase in free cash flow. TCL.A also showed prudent capital management and lowered its net debt. Notably, the net indebtedness ratio stood at 1.8x on Q1FY21, improved from 2.3x in Q1FY20. A declining net indebtedness ratio indicates higher financial flexibility. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a target upside of single-digit upside (in percentage terms). Hence, considering the above facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 23.53 on July 19, 2021.

One-Year Technical Price Chart (as on July 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

Corus Entertainment Inc.

Corus Entertainment Inc. (TSX: CJR.B) is a media and content company that operates in the diversified media industry and has two business segments, which includes television and radio.

Key Updates:

• An Income Play: The company has reported a consistent dividend payment over the years, supported by stable cash flows, which is a key positive. Notably, the stock of CJR.B holds a dividend yield of ~4.2%, which looks decent considering the ongoing interest rate scenario.

• Improved cash flow amidst turbulent times: The company reported a higher cash flow from operations of CAD 224.402 million in 9MFY21, as compared to CAD 219.074 million a year ago. The surge was primarily supported by a net income in the current period, as compared to a net loss in the previous year. Notably, free cash flow grew to CAD 216.8 million in 9MFY21, higher than CAD 208.9 million a year ago.
  

• Reduction in total debt: The company successfully reduced its total debt to CAD 1,396.765 million in Q3FY21, reflecting ~7% decline over Q4FY20. A reduction in the total debt is a key positive and indicates improved financial flexibility.

Q3FY21 Financials Highlights:

• The group announced its third quarter results, wherein the company posted revenue of CAD 402.999 million, jumped from CAD 348.967 million in the previous corresponding period (pcp). The increase was supported by double-digit growth from both television and advertising segments.

Revenue Bifurcation (Source: Company Report)

• Income before income taxes stood at CAD 65.533 million, as compared to a loss of CAD 757.227 million in pcp. The loss was primarily due to the inclusion of broadcast licenses and goodwill impairment cost amounting CAD 786.790 million in Q3FY20. On the flip side, the group witnessed a higher direct cost of sales, general and administrative expenses in Q3FY21.
• Net income stood higher at CAD 48.275 million, as compared to a net loss of CAD 748.280 million in Q3FY20.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company witnessed a surge in the input costs in the recent past, and the continuation of the above trend would dampen the group’s margin and cash flows.

Stock Recommendations:

The group reported strong growth in the subscribers to its STACKTV, Nick+, and other streaming platforms in the recent past, which is likely to support the company’s subscription revenue in the coming quarters. Moreover, with the collaboration ThinkTV, the company announced the addition of seven new industry-wide common advertising segments, which is likely to boost the company’s advertising revenues in the coming days. On the valuation front, the stock is available and EV to EBITDA multiples of 4.6x on an NTM basis, as compared to the industry (Media & Publishing) median of 8.8x. Hence, considering the above rationale, we give a ‘Hold’ rating on the stock at the closing price of CAD 5.71 on July 19, 2021.

One-Year Technical Price Chart (as on July 19, 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.