TORONTO — CanWest Global Communications may be the largest media company in Canada, with a hearty stable of international radio and television interests, but fiscally, it’s been getting a rough ride of late, particularly domestically.
On July 31, the Winnipeg-based company’s shares hit a 52-week low of C$8.25 ($7.81), and in its most recent quarter, CanWest posted just $7.6 million in earnings — thanks primarily to cost-cutting — on more than $699 million in revenue. Yet several analysts have a “buy” on the company. Why?
Two words: “positioning” and “potential.”
Industryites, and bean-counters especially, love the fact that CanWest, with plenty of help from partner Goldman Sachs, is moving to buy Alliance Atlantis Communications. Shares hit a 52-week high when the $2.2 billion deal was announced in January.
“It’s definitely a good move from a strategic position, because it gets them into (cable), and they need to be in it,” one analyst says.
The future of broadcasting is clearly in cable, known as specialty in Canada, with the trajectory of the over-the-air TV business in the next decade more likely to resemble AM radio in its road to nowhere, according to veteran TV exec Jay Switzer. Even late in the game, CanWest has done well to grab the bull by the horns.
The company has also been moving aggressively to contemporize its domestic TV business, upping its programming might both in foreign acquisitions (“Back to You,” “Cane,” “Life,” “Journeyman”) and domestic production (“Da Kink in My Hair,” “Til Death Do Us Part,” “The Best Years”) and inking high-profile output and branding deals with big U.S. players, giving it bragging rights for Entertainment Tonight Canada and E!
Still, the market has not been kind to CanWest. Share price began sliding steadily after the CanWest-Goldman Sachs deal to buy Alliance Atlantis was announced, and details remained stubbornly obtuse.
CanWest shares hit a 52-week low July 31, when the company finally revealed that the duo had dropped plans to issue bonds in favor of bridge financing, and disclosed that CanWest is kicking in more equity than originally planned (and thus has to perform better than previously believed in order to benefit when the television assets are carved up between the two in 2011).
And there is more uncertainty to come. The broadcasting portion of the Alliance Atlantis deal still has to receive a greenlight from the CRTC, something that cannot be counted on; some say the company will have to sell either Australian network Ten or its Canadian newspaper division when the rubber hits the road in 2011, if not sooner.
So why else do analysts continue to issue a buy on the stock? Two more words: “It’s cheap.”