CJREF - Corus: No Signs Of Recovery

2023-07-12 01:32:30 ET

Summary

• Corus Entertainment's Q3 FY23 results show a decline in revenues, particularly in the television and radio segments.
• The company's stock is currently trading at a low level, with no positive signs in price action.
• The company's higher valuation is not justified due to declining revenue growth, significant long-term debt, and underperformance compared to peers, leading to a hold rating on CJREF.

Corus Entertainment ( CJREF ) is a media and content company that operates radio stations and television networks worldwide. They also distribute animation software, television programs, and book publishing activities. They also operate 39 radio stations and offer children’s animated content. CJREF recently posted its Q3 FY23 results. I will analyze its financials and technicals in this report. I think there is no reason to invest in CJREF; hence I assign a hold rating on CJREF.

Financial Analysis

CJREF recently posted its Q3 FY23 results . All the figures are in Canadian dollars. The revenue for Q3 FY23 was $397.3 million, a decline of 8.3% compared to Q3 FY22. I believe a decline in revenues in the television and radio segment was the major reason behind the revenue drop. The revenue from the television segment dropped by 8.1% in Q3 FY23 compared to Q3 FY22. I believe lower advertising demand impacted its television segment. The revenue from TV advertising declined by 12% in Q3 FY23 compared to Q3 FY22, and the subscriber revenue declined by 5%, which I believe were the main reasons behind the revenue decline in the television segment. The revenue from the radio segment declined by 10.7% in Q3 FY23 compared to Q3 FY22. I believe the revenue decline in the professional services and entertainment categories was the main reason behind the revenue decline in the radio segment.

Their consolidated segment profit for Q3 FY23 was $96.9 million, a decline of 21.6% compared to Q3 FY22. I believe increased programming costs affected its segment’s profitability. I think the financial performance of CJREF in Q3 FY23 was quite disappointing. The difficult advertising environment affected its financial performance, and looking at the advertising recession, I think it might continue to struggle financially in the coming months.

Technical Analysis

CJREF is trading at the $1 level. Do not try to catch a falling knife; this phrase perfectly implies here after making an all-time high of $27, it has fallen to the $1 level. Looking at the price chart, I don’t think there is even a single positive about the price action. The stock has broken the important support zone of $1.4 and is currently near its all-time low. In my opinion, one should avoid this stock at any cost because currently, there is no support zone for the stock, and it might fall even further. One can only expect a turnaround when it crosses its 200 ema, which is at $3.4, but until then, I would advise staying away from it.

Should One Invest In CJREF?

First, talking about CJREF’s valuation. Its five-year average P/E ratio is 6.16x, and currently, it is trading around a P/E [FWD] ratio of 12.28x; it shows that it is currently trading above its historical average, but its revenue growth rate has been declining with time. So I think the higher valuation is not justified, and I think it is overvalued. In addition, it has a revenue growth [YOY] of -6.68%, and its competitors like TSQ , BBGI , and SALM have a revenue growth [YOY] of 8.5%, 3.82%, and 2.43%; it shows that CJREF has been underperforming compared to its peers.

In addition, if we look at its balance sheet with a market capitalization of $201 million, it has a huge long-term debt of $1.2 billion. After looking at its declining revenue growth, the debt becomes even more of a concern. I believe the advertising recession that started last summer, which impacted its revenue growth, might continue to affect its revenue growth in the coming months. Hence, I think its financial performance in the coming quarters might continue to disappoint. I think that eventually cutting off dividends might be necessary due to declining revenue and massive debt.

The shareholding pattern of CJREF is also alarming. The institutions own just 16.9% shares in the company, which is quite less, and I think this is one of the major reasons that we see huge volatility in its share price fluctuations.

I have analyzed its financials, fundamentals, and technicals, and I think there weren’t any positives in all three aspects. They are looking weak in all aspects. Hence, I believe one should avoid it at all costs as I think one might not benefit from this company. Hence I assign a hold rating on CJREF.

Risk

Television, literature, and other media content development and delivery are highly competitive industries. Several media content sources include globally distributed independent television production businesses, vertically integrated large motion picture studios, television networks, streaming corporations, and book publishers. Compared to Corus, many of these rivals are far larger and have access to significantly more resources. Corus competes with other television and film production firms for third-party ideas and stories as well as for actors, directors, and other necessary employees for production. The availability of timeslots for shows produced by outside production companies has also declined due to the vertical integration of the television broadcast industry globally and the emergence and growth of new networks, which produce a significant share of their own programming.

Additionally, there is still fierce rivalry for the most desirable timeslots that those providers offer. There can be no guarantees that Corus will be able to compete successfully in the future, that Corus will continue to produce or acquire rights to additional successful programming, or that Corus will enter into agreements for the financing, production, distribution, or licensing of programming on terms that are advantageous to Corus. There can also be no guarantees that Corus will be able to increase or maintain its penetration of broadcast schedules.

Bottom Line

Looking at all the aspects, I think one should avoid this company as I think there is no value one will get out of this. They are fundamentally, financially, and technically weak, and no sign of recovery exists. Hence I assign a hold rating on CJREF stock.

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