TORONTO Oct 23 Shares of Canwest Global
Communications Corp CGS.TO, Canada's biggest media company,
slipped into penny-stock territory on Thursday, amid a recent
analyst downgrade and a darkening outlook for its business.
Canwest, also the country's biggest publisher of paid
English-language daily newspapers, fell 15 Canadian cents to 95
Canadian cents on the Toronto Stock Exchange.
About a year ago, the shares were changing hands at
"It's not for the faint of heart," CIBC World Markets
analyst Bob Bek said of the stock.
The latest drop comes days after TD Newcrest analyst Scott
Cuthbertson cut the stock to "reduce" from "speculative buy"
and forecast little financial breathing room for the Winnipeg,
"We expect the fundamental environment for Canwest to be
very challenging for the foreseeable future," he wrote in his
"Conventional television remains under ... pressure in our
view as do major market daily newspapers."
Canwest's newspaper holdings are anchored by the National
Post, a daily based in Toronto. It also owns the Global network
of television stations in Canada and has Australian TV
operations through Network Ten.
Last year, Canwest expanded its television holdings by
partnering with an affiliate of U.S. investment bank Goldman
Sachs (GS.N) to buy specialty TV group Alliance Atlantis
Communications for C$2.3 billion ($1.83 billion).
Canwest's asset base means it is reliant on advertising
revenue. Because of the global economic downturn, many
companies are expected to scale back spending on TV and
newspaper ads, which doesn't bode well for firms like Canwest.
"It's going to come," Bek said of an advertising slowdown.
"It's just a question of how deep it gets, and I don't think
anybody knows that yet."
As well, newspaper readership has steadily weakened in
recent years as more people choose to get their news on the
Internet. Companies like Canwest have tried to keep up with
this trend by expanding their online presence to attract
readers and, consequently, advertisers.
However, Cuthbertson wrote, "we doubt that online products
can grow fast enough or large enough to offset expected
declines in the legacy businesses."
The company has also raised some investors' eyebrows with
about C$3.7 billion of debt that it is carrying on its books.
"They don't have a great amount of room on their debt
responsibilities, on the covenants," Bek said.
Cuthbertson said he thinks Canwest can continue operating
because no large amount of its debt is due imminently.
"However, we foresee potential difficulties meeting
obligations in 2012 when large amounts become due," he wrote in
his note. "In the interim, we believe the company will have
very little financial flexibility."
(Reporting by Wojtek Dabrowski; editing by Rob Wilson)