Opinions
Stephen Takacsy, B. Eng, MBA
Quebecor Inc (B)
QBR.B-T
PARTIAL BUY
Jul 26, 2023
Stock price when the opinion was issued
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QBR.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)We 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.
The 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.
Our 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.
Good value, whole sector's been in a funk. Got a good price for Freedom Mobile. Good operators. Better growth potential, as they can now operate outside of Quebec. Wants to see capex plans for Western expansion before adding to his position.