Persistently underwhelming revenues ahead of a looming maturity wall prompted RBC Dominion Securities to cut its price target on Postmedia Network Canada Corp. to zero from $0.50.
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 analysts led by Haran Posner.
The firm reported its fiscal first-quarter results on Wednesday, with both earnings and revenues 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 revenues 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 Inc. in April 2015. Excluding the impact of this purchase, organic revenues were down 13.1 per cent year-over-year.
The company's challenges, according to RBC, are both structural and cyclical.
"Year-over-year revenue declines in print advertising (-17.6 per cent), print circulation (-6.7 per cent), and digital media (-5.7 per cent) 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."
It's rare but not unprecedented to see an analyst slap a price target of zero on a stock. RBC's move puts Postmedia in the same unenviable company as Radioshack.com LLC and General Motors Co.