{"id":4359,"date":"2018-04-09T07:00:46","date_gmt":"2018-04-09T11:00:46","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1570857"},"modified":"2018-04-09T07:00:46","modified_gmt":"2018-04-09T11:00:46","slug":"corus-defends-strategy-despite-stock-price-woes","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/04\/09\/corus-defends-strategy-despite-stock-price-woes\/","title":{"rendered":"Corus defends strategy despite stock price woes"},"content":{"rendered":"

Corus Entertainment Inc., like many traditional broadcasters, is fending off the internet on two fronts: subscription and advertising. Digital giants are encroaching on both revenue streams, as some entice television viewers to cut their subscriptions in favour of streaming video online while others lure advertisers over to social media.<\/p>\n

Two years ago, the Toronto-based media company, created in 1999 as a Shaw Communications Inc. spinoff, bulked up for a long-term battle. It more than doubled its size with a $2.65-billion deal to buy the rest of Shaw\u2019s media assets and plotted to deal with the online onslaught by focusing on premium content, selling data-driven ads and cutting costs.<\/p>\n

The deal allowed Corus and Shaw \u2014 both were and remain controlled by the Calgary-based Shaw family, which respectively owns 85 per cent and 78 per cent of the class A voting shares in each company \u2014 to focus purely on their main businesses: content and the pipes that carry it.<\/p>\n

But it\u2019s been a bumpy start to the third year of \u201cthe new Corus,\u201d as chief executive Doug Murphy described the post-transaction company on a quarterly call with analysts Thursday. Despite healthy cash flows and a strategy that analysts seem to like, Corus’ success is anything but certain in a market disrupted by the likes of Netflix Inc., Google LLC and Facebook Inc. \u2014 even if it does everything right.<\/p>\n

Corus\u2019 stock price hit an all-time low earlier this week, closing at $5.82 on Tuesday. Its stock rebounded 20 per cent after its results beat Bay Street\u2019s expectations, but even at its $7.34 close on Friday it is well below the $11 to $13 range it\u2019s generally traded at since it bought Shaw Media.<\/p>\n

Shaw received 71 million Corus non-voting class B shares in the sale. At the time, those were worth about $800 million. As of Friday, their value had plummeted to about $515 million. Shaw declined to comment for this article.<\/p>\n

Following the transaction, which was funded with a loan, Corus has not reduced its debt as fast as it or analysts expected to, and soft television advertising revenue makes it unlikely it can reduce its debt-to-EBITDA ratio to 3.0 this year, Murphy said.<\/p>\n

This has investors questioning the company’s high dividend yield and whether Corus has enough money left over to spend on growth strategies.<\/p>\n

\u201cA dividend cut appears inevitable,\u201d Barclays analyst Phillip Huang noted Thursday after management said it would update its dividend policy in June. Desjardins analyst Maher Yaghi noted it would be better to cut the dividend to prioritize debt repayment, given the company’s high leverage ratio.<\/p>\n

But despite the internal financial pressure and external industry challenges, Murphy believes Corus\u2019 strategy is on the right track and said it was \u201cabsolutely\u201d the right decision to buy Shaw Media.<\/p>\n

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\u201cThis transaction brought a wealth of opportunity to strengthen Corus\u2019 position in the market,\u201d Murphy said in an email.<\/p>\n

The deal added assets such as the Global Television Network, Food Network Canada and HGTV Canada to Corus’ stable of brands including W Network, YTV and the Disney Channel. In October, Corus sold two of the acquired channels, Historia and Series+, to Bell Media Inc. for $200 million, pending regulatory approval.<\/p>\n

Murphy said the combined scope and scale from the Shaw deal helped Corus gain significant share from competitors, grow revenue in large local markets by combining its radio and television sales efforts, and improve partnerships internationally.<\/p>\n

Corus had a particularly good quarter in radio, which Murphy credits to synergies from the Shaw deal.<\/p>\n

\u201cIn those large markets where we are co-located with Global TV and Corus radio, the sales teams are just having a great time selling television and radio together,\u201d he said on the call, adding the double-digit growth rate is off a small base, but still meaningful.<\/p>\n

Murphy told analysts there\u2019s been good uptake of its video-on-demand product sold through television providers such as Shaw that allows customers to binge watch shows such as HGTV\u2019s Property Brothers. He said he sees a small opportunity for Corus programming as more online streaming players such as YouTube and Amazon Prime offer services in Canada.<\/p>\n

Corus has also had success using technology to better insert ads into video on demand and target ads to specific demographics, such as empty nesters and foodies.<\/p>\n

\u201cThough we are operating in a changing media market and anticipate variability quarter to quarter, we are focused on our long-term goals and believe that we have the right strategy in place to deliver success and long-term value for shareholders,\u201d Murphy said in the email.<\/p>\n

\u201cWe have been clearly disappointed in the recent share-price decline and believe our stock is highly undervalued, particularly given our strong free cash flow and the progress we are making against our strategic priorities.\u201d<\/p>\n

But in the Netflix era, in which television ad revenue is lower and unpredictable, one of those priorities has to include offering premium content, which Murphy acknowledged. \u201cWe\u2019re going to hunt with the big dogs,\u201d he told analysts.<\/p>\n