Persistently underwhelming revenue ahead of a looming maturity wall prompted RBC Dominion Securities to cut its price target on Postmedia Network Canada to zero, from 50 cents.
Postmedia operates Canada’s largest newspaper chain and various digital media properties, including the National Post.
“While management continues to evaluate options with respect to the capital structure, it is difficult to attribute positive equity value to the shares absent a meaningful improvement in underlying operating trends ahead of significant debt maturities in August 2017 ($313 million first-lien notes) and July 2018 ($359 million second-lien notes),” wrote RBC analysts led by Haran Posner.
Postmedia reported its fiscal first-quarter results on Wednesday, with both earnings and revenue falling short of analysts’ expectations.
Management has moved forward targets for cost reductions, the analysts acknowledged, and has enjoyed considerable success in cutting expenses. But the consistent pressure on revenue bodes ill for the company in light of its massive leverage, they said.
Postmedia’s top line was buoyed by its acquisition of Sun Media publications from Quebecor Media in April 2015. Excluding the impact of this purchase, organic revenue was down 13.1 percent from a year earlier.
The company’s challenges, according to RBC, are both structural and cyclical.
“Year-over-year revenue declines in print advertising (-17.6 percent), print circulation (-6.7 percent), and digital media (-5.7 percent) have all re-accelerated on a sequential basis,” the analysts wrote. “While advertising declines clearly reflect the ongoing migration of spend to digital, revenue pressure also reflects the challenging economic environment in Western Canada, to which Postmedia has meaningful exposure.”