(Bloomberg) -- Canada’s Corus Entertainment Inc. warned that it may soon breach its debt covenants and said it’s planning more restructuring as advertising revenue spirals downward. The shares plunged to a record low.
Analysts advised shareholders to get out before the company is recapitalized. Adam Shine, an analyst at National Bank Financial, cut his price target to 1 Canadian cent. “It’s hard for us to ascribe any remaining value for equity holders,” he wrote.
Corus fell 23% to close at 15.5 Canadian cents in Toronto on Monday. The shares were as low as 12.5 cents, matching a low point set in late June.
The television broadcaster issued a so-called “going concern” warning in quarterly financial results that disappointed analysts. Toronto-based Corus reported revenue of C$332 million ($243 million) in the fiscal quarter ended May 31, a 16% drop from a year earlier.
The decline in advertising revenue and profitability, and the possibility that it will be offside on covenants by September, “cast significant doubt about the company’s ability to continue as a going concern, and therefore the Company may be unable to realize its assets and discharge its liabilities in the normal course of business,” Corus said in a filing.
The company, which has about C$1 billion in long-term debt, is about to lose the rights to key programming and trademark deals with Warner Bros Discovery Inc. The channels, which include HGTV and The Food Network, are highly profitable, but rival Rogers Communications Inc. will have the Canadian rights as of January.
Corus will carry on with new programming under different brands.
Corus, which has cut hundreds of jobs recently, needs “a much more aggressive cost-cutting drive,” Scotiabank analyst Maher Yaghi wrote in a note to investors Monday. Executives told analysts that they’re in the process of eliminating 800 jobs — with 500 completed and 300 more to come.
“The loss of high-margin advertising revenues remains very difficult to offset,” Yaghi wrote. “We don’t expect trends in TV revenues to reverse in the coming months and hence we expect Corus to push further deep cuts in order to protect the balance sheet.”
The analyst cut the target price to 5 Canadian cents. “We have assessed a valuation of $0.05 on the shares at this point as a placeholder pending a refinancing of the debt, but we think dilution to current equity holders could be even more elevated in the near term.”
TD Cowen analyst Vince Valentini also chopped his target to 5 Canadian cents.
On an adjusted basis, Corus lost about C$20 million in the fiscal third quarter.
Corus expects television advertising revenue to fall by a similar percentage in the current quarter. It attributes weak sales sales to lingering effects of the Hollywood writers’ strike, foreign competition in the digital video market and low advertising demand in linear television.
--With assistance from Stephanie Hughes.
(Adds Scotiabank analyst’s target price.)
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