Analysts see better days ahead for Corus Entertainment Inc. as the company bounces back from a poorly received share sale last month and a temporary loss in viewers and advertisers to Toronto Raptors playoff games on rival networks.
Investment banks began publishing reports on Corus last week that highlighted the potential for rising advertising revenues, lower debt and a higher stock price, after being temporarily silenced for two weeks during a $548-million sale of Corus stock. Regulators restrict what analysts can say about a company when it is in the midst of an underwriting.
Toronto-based Corus, owner of the Global television network, specialty TV channels and radio stations, reports third-quarter results on June 26, and is coming off two consecutive quarters of better-than-expected financial performance. In a report on Friday, analyst Adam Shine at National Bank Financial said, “Notwithstanding the deeper run by the Raptors in the NBA playoffs, Corus’ third quarter optimism isn’t likely to be dampened.”
Raptors games are broadcast in Canada by TV networks owned by Rogers Communications Inc. and BCE Inc., both of which hold stakes in the team. The Raptors’ run to the NBA championship is temporarily reshaping the TV advertising market, as corporations jump at the opportunity to link their brands with the team.
Looking ahead to Corus’s prospects after the NBA season, which will end by mid-June, Mr. Shine said, “Besides expectations of better results in a seasonally-strong third quarter and possible momentum in the fourth quarter, the start of fiscal 2020 should benefit from federal election spending.”
Mr. Shine raised his target price on Corus stock to $8.50 from $8, and pointed out the company trades at a significant discount to the valuation of comparable U.S. broadcasters such as Viacom Inc. and Discovery Communications Inc. A number of Bay Street analysts also had target prices for Corus in the $8 range going into last month’s stock offering. Corus shares closed Friday at $6.45 on the Toronto Stock Exchange, up 14 cents.
Corus stock went on a roller-coaster ride last month after a group of 13 investment dealers led by TD Securities Inc. purchased 80.6 million shares from Shaw Communications Inc. on May 14, then attempted to sell the stock to investors for $6.80 a share in what is known as a bought deal. Corus shares were changing hands at $8 before the launch of the deal.
The underwriting sold poorly and the banks subsequently cut the price to $6.25 in an attempt to sell approximately 60 million remaining shares. The transaction closed on May 31, and sources who worked on the share sale said the investment dealers lost more than $20-million on the bought deal. The Globe granted anonymity to the sources because they are not authorized to speak publicly about the matter.
One headwind in the Corus stock sale was a lack of demand from index funds, which hold shares in every company that is in a benchmark such as the S&P/TSX Composite Index. Corus was taken out of the S&P/TSX index in September, 2018, after a sharp decline in the share price – Corus stock was below $4 at the time. Investment bankers working on last month’s offering said after the recent increase in the share price, Corus could rejoin the benchmark as early as this fall. Returning to the S&P/TSX index would result in demand for approximately 10 million Corus shares.
Shaw Communications sold a stake in Corus acquired in 2016 and is focusing on expanding its wireless and cable networks. Analyst Robert Bek at CIBC World Markets said in a recent report, “While the deal does not move the needle from a valuation perspective, it does make a lot of sense for strategy as it allows Shaw to get off what was clearly a non-core asset all the while raising some funds to further its wireless growth strategy.”
The Calgary-based Shaw family continues to control Corus through a dual-share structure. Both Corus and Shaw Communications were founded by 84-year-old entrepreneur J.R. Shaw. His daughter Heather Shaw is the executive chair of Corus, a position she has held since the company went public in 1999, and her sister Julie Shaw is vice-chair.