MONTREAL – It’s time for Corus Entertainment to jettison its stable of 15 Quebec radio stations, says an analyst’s report.
“Admittedly, Corus Radio’s performance in (fiscal) 2008 has been disappointing relative to plan. Despite the Western skew of the company’s radio operations (40% of total), Corus has been struggling to keep up with industry performance,” reads a report from Genuity Capital Markets media and communications analyst Carl Bayard.
“The reasons: several new competitors in Calgary, where Corus grew by 7% compared to market growth of 13% in Q3/08, and a lagging station group in Quebec, combined with a very soft market in the province.”
Noting that Corus Radio chief John Hayes announced his departure yesterday, “(w)e believe that Mr. Hayes’s departure may be a prelude to Corus electing to dispose of its Quebec Radio operations,” wrote Bayard.
“Quebec Radio has been a sore spot for Corus since its first foray into the province in 2000, consistently depressing consolidated Corus Radio margins in the process.” Corus acquired several of the stations when the company purchased Power Broadcasting back in 2000.
“Using F2006 data points provided by the company, Corus Radio Quebec represented approximately 20% of Corus Radio at the time and posted paltry EBITDA margins of 4-5%,” added Bayard’s report.
“While it is difficult to say exactly how much a potential acquirer would be willing to pay for Corus’s market-lagging Quebec stations, or who the buyer may be,” wrote Bayard, (Ed. Note: the usual suspects who have no radio footprint in Quebec, such as Rogers and Newcap for example, might be potential acquirers), “the lift to (Corus’) Radio division margins from it disposing of a chronic underperformer is far more relevant in our eyes.
“While admittedly, the per share value accretion from a disposal may be immaterial according to our calculations ($0.27/share), we are of the opinion that sentiment surrounding Corus stock would lift were the company to sell its margin-dilutive Quebec operations, even at currently depressed industry multiples. This would enable the company to focus on its more profitable Ontario and Western Radio operations,” concluded Bayard.
Such a sale would cut the number of stations Corus owns by 28% to 38.
– Greg O’Brien
