October 23, 2008 / 5:24 PM / 11 years ago

Canwest stock below C$1 as ad outlook darkens

TORONTO, Oct 23 (Reuters) - 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 C$8.28.

“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, Manitoba-based company.

“We expect the fundamental environment for Canwest to be very challenging for the foreseeable future,” he wrote in his report.

“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.”

$1=$1.26 Canadian Reporting by Wojtek Dabrowski; editing by Rob Wilson

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