Corus Entertainment Inc.

Corus Entertainment Inc. (TSX: CJR.B) is a media and content company which operates in the diversified media industry and has two business segments like  television and radio. The group generates its revenue through subscription fees, advertising revenue, content licensing and merchandising sales.

Key Highlights:

• Reduction in total debt: During the last few quarters, the company reported a constant reduction in its total debt, which is a key positive as it is enhancing the overall financial flexibility. Debt to Equity ratio improved to 1.32x in Q3FY21, as compared to 1.79x in Q3FY20.

• Robust Subscriber’s addition: As on June 29, 2021, the company reported 600,000 paying subscribers within its STACKTV, Nick+ and other streaming platforms, reflecting an increase of more than 500,000 paying subscribers on April 9, 2021. The above was supported by its line-up of original premium content within its portfolio of specialty networks and streaming platforms.
• Elevated operating metrics: The company reported consistent growth in its new revenue streams and has also registered a strong generation of advertisement revenues in Q3FY21. The above is supported by the company’s participants within the rapidly growing streaming distribution platforms and digital advertising markets. Income from its new platform segment stood at the highest level in Q3FY21 since FY18.

Q3FY21 Financials Highlights:

• The group declared its third quarter results, wherein the group posted revenue of CAD 402.999 million, jumped from CAD 348.967 million in the previous corresponding period (pcp). The increase was supported by strong momentum from both radio and television segments.
• The quarter was marked by higher direct cost of sales, general and administrative expenses, while a lower interest expense.
• 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 to CAD 786.790 million in Q3FY20.
• Net income stood at CAD 48.275 million, versus a net loss of CAD 748.280 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company witnessed a surge in 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 company has introduced exciting content related to nine premium series across the home renovation, real estate, and food genres including popular shows Backyard Builds (Season 1-3), Home to Win (Season 1-4) and Wall of Chefs, which is expected to attract audiences across several segments. Also, the stock was offering an attractive dividend yield on more than 4% amid a low interest rate environment. On the valuation front, the stock is available at an EV to EBITDA multiples of 4.5x on an NTM basis, as compared to the industry mean of 6.6x. Hence, considering the aforesaid facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 5.75 on September 23, 2021.

One-Year Technical Price Chart (as on September 23, 2021). Analysis by Kalkine Group

Calian Group Ltd.

Calian Group Ltd. (TSX: CGY) offers diverse products and solutions for the private sector through its Advanced Technologies, Health, Learning, and IT and Cyber Solutions.

Key Highlights:

• New order wins: On September 16, 2021, the company received a new order from the NATO Security Force Assistance Centre of Excellence, which is a multinational entity with Italy, Albania and Slovenia as sponsoring Nations. CGY would provide its strategic planning, developing training exercises, Security Sector Reform and Security Force Assistance through its interpersonal coaching and subject matter expert training program. Earlier, the company reported that it would provide telehealth services to the Government of Nunavut as part of the government's long-term pandemic preparedness strategy.
• Cash flow turned positive: In 9MFY21, the company reported higher cash generation of CAD 18.876 million, versus cash used of CAD 2.989 million in pcp. The above was supported by strong working capital management and would support the company’s overall liquidity.
• Growing traction from the health segment: On a year-to-date basis, the company generated higher income from its Health segment, which is encouraging. Notably, in 9MFY21, revenue stood at CAD 150.770 million, higher than CAD 106.187 million in pcp. This was supported by new contract wins related to the COVID-19 response, coupled with growing demand from the company’s patient support programs. Moreover, the group witnessed increased demand for its clinician services and services to remote locations across Northern Canada, which also supported the growth.

Q3FY21 Financial Highlights:

• CGY announced its quarterly result, wherein the company posted total revenue of CAD 136.094 million, climbed from CAD 105.528 million in the previous corresponding period (pcp). The increase in revenue was driven by impressive growth from all its segments.
• The company registered strong gross profit at CAD 33.897 million, as compared to CAD 22.531 million, thanks to the higher revenue, partially offset by higher cost of revenues (CAD 102.197 million v/s CAD 82.997 million in pcp).
• The quarter was marked by higher selling and marketing expenses and an increase in general and administration costs. The increase in the selling and marketing costs was primarily due to added expenses from the recent acquisition.
• CGY reported its net profit of CAD 2.063 million, down from CAD 3.866 million in pcp. The decrease was primarily attributable to a higher expense from changes in fair value related to contingent earn-out.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The industry in which the company operates is very dynamic in nature and is rapidly evolving, which might lead to the entry of any player within the industry with unique technological backup. This might lead to a price competition.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company reported improved liquidity ratios, wherein quick ratio and current ratio were recorded at 1.42x and 2.14x, respectively, in Q3FY21, which was higher than the industry median of 1.24x and 1.43x. The indicates higher short term liquidity when compared to the industry peers. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered industry (Professional & commercial services) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 62.01 on September 23, 2021.

One-Year Technical Price Chart (as on September 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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