Opinions
Brian Madden
Quebecor Inc (B)
QBR.B-T
DON'T BUY
Aug 11, 2021
Stock price when the opinion was issued
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Premium contentQBR.B is a disruptive source in the telecommunications space in Canada. It's recent acquisition of Freedom Mobile for $2.8 billion positions it well for expanding 5G in eastern Canada. Recently reported earnings showed a 19% increase in earnings. Cash reserves are growing, while debt is retired. It trades at 10x earnings and supports a 39% ROE. Its dividend is backed by a payout ratio under 50% of cash flow. We recommend a setting a stop-loss at $25, looking to achieve $37 -- upside potential of 25%. Yield 4.2%
(Analysts’ price target is $37.33)Premium contentWe reiterate this disruptive source in the telecommunications space in Canada as a TOP PICK. Management announced it has met all the commitments required to complete the acquisition of Freedom Mobile, which will position it well for expanding 5G in eastern Canada. We like that cash reserves are growing, while debt is retired. It trades at 10x earnings and supports a 39% ROE. Its dividend is backed by a payout ratio under 50% of cash flow. We recommend maintaining the stop at $25, looking to achieve $37 -- upside potential of 25%. Yield 4.2%
(Analysts’ price target is $37.25)Hydro One is too expensive to buy here. QBR.B is in a very challenged space with the 4 well-capitalized players. Whole telecom industry is cheap, QBR.B will work over time, decent dividend.
Gun to the head, he'd pick QBR.B. No gun, putting capital into a dividend stock for 3-5 years, he'd pick neither and put money into MFC instead utilizing the Canadian dividend tax credit.
Premium contentThe traditional players have to keep reinvesting capital to keep up with competitors, who all have the same problem. Only interesting play in the space is QBR.B. No market share, good product offering, and no clients. So any market share it grabs would be a big boost to its business.
He'd buy today, but remember that these are tough businesses over the medium- to long-term. Doesn't mean you have a long-term, high-revenue-growth business.
Telcos have lagged other yield sectors, and this creates an opportunity. He's buying all the telcos. This is his #4 choice in the space, as it has long-term issues in network buildout.
Premium contentPremium contentOur PAST TOP PICK with QBR.B has triggered its stop at $33. To remain disciplined, we recommend covering the position at this time. This will result in a net investment gain of 11%, when combined with our previous guidance.
Benefiting from the Freedom Mobile purchase. Able to expand in Ontario and Western Canada without deploying too much capex. Very high ROE and free cashflow, allowing them to lower debt and obtain investment-grade rating on bonds. Aggressively buying back shares. Best-performing telecom stock this year.
He owns BCE and Telus instead for income. At this point in the cycle, and just looking at total return, he wouldn't own any telcos. Better opportunities elsewhere for capital gains in the value and cyclical areas. Not a pure play telco. Not the biggest or most diversified. Commends what they're doing with the business.