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Summary
Corus Entertainment is one of the largest broadcasting companies in Canada, which emerged after a spin out from the old Shaw Communications. The company owns many of the brands Canadians watch everyday, including Global News, W network, Teletoon, YTV, and the Food Network, to name a few. In terms of specialty channels, the company has deals in place where they are granted rights for the Canadian market, including the Cartoon Network, Disney Channel, National Geographic, and the History Channel. This means that it’s likely that if you have cable or any television, you have Corus Entertainment’s offerings in your bundle. However, Corus isn’t just in television, with a large number of radio stations primarily in tier 1 Ontario markets such as the GTA and Ottawa, a large animation and distribution studio in Nelvana, and StackTV, a streaming service that embodies shows from 12 of the company’s specialty networks. We believe that fears of the rapid growth of streaming and a more challenging advertising landscape has offered up an interesting value investment opportunity in Corus. The market is currently pricing Corus as a rapidly declining business, which must sacrifice margins in order to slow it’s declining top line. We share this belief, in part. We believe that Corus will be able to sustain its current margins while declining top line revenues and a slower pace than expected. In our valuation we found our expectations imply a fair value for Corus at around $10.40/share, representing a 93.98% upside to its most recent price.
Recent Events
May Sell Off- on May 15th, Corus shares slid over 15% just as they started getting going, as a result of Shaw Communications selling out its 39% stake. Since then the shares have been pressured. A move like this did not impact the business at all, rather impacted sentiment and supply and demand of shares. It is, in part, for this reason, we see such a radical discount in value for the business.
Conclusion
Although Corus is in an industry with a gloomy outlook based off continual cord-cutting and an increasingly competitive ad space, we believe the market is grossly overestimating the pace and effect this trend will have on Corus. While we agree that streaming will be the way of the future rather than cable TV, we feel that cord-cutting will be driven by a new generation moving out and simply not getting cable, rather than an active decision to get rid of it. This coupled with Corus’ integration of both content and advertising make it better suited to weather the declining market than competitors. It is this that we believe the market is missing. There is still a lot of value within this business, and we believe that, in time, value investors will notice this gross mispricing and flock to the business, bringing the rest of the market with them.
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