On Tuesday, National Bank Financial adjusted its outlook on shares of Corus Entertainment (TSX:CJRb) (CJR/B:CN) (OTC: OTC:CJREF), significantly lowering the price target to C$0.01 from the previous C$0.25. The firm maintained its Underperform rating on the stock. The revision follows Corus Entertainment's ongoing financial challenges, including high leverage and potential covenant breaches.
The company's leverage ratio stood at 3.91 times, up from 3.6 times in the second quarter. Analysts pointed out that this is approaching the covenant threshold, which is set to tighten further in the upcoming quarters. Corus is expected to face a covenant limit of 4.5 times in the fourth quarter, which will subsequently decrease to 4.25 times at the start of fiscal year 2025.
Corus reported having C$67 million in cash, with C$98 million available from a C$300 million credit facility. However, availability on this facility dropped sharply to C$30 million as of June 1. In response to these liquidity concerns, management is seeking amendments or relief to avoid an early breach of covenants in fiscal 2025.
Efforts to mitigate financial strain include plans to reduce the workforce by approximately 25%, equating to around 800 positions compared to fiscal 2023, with 500 already cut through the third quarter. These layoffs are projected to save up to C$83 million in total salaries and benefits.
In addition to internal restructuring, Corus is exploring various legal and regulatory avenues to address the impact of the Warner Bros. Discovery (NASDAQ:WBD) dynamic. The company is also seeking relief from the Canadian Radio-television and Telecommunications Commission (CRTC) while investigating new efficiencies.
The analyst concluded that, based on revised estimates and negative projected values in the net asset value calculations, it is difficult to assign any remaining value to equity holders. The new nominal price target of C$0.01 per share reflects these concerns and the challenging outlook for the company.
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