Quebecor’s strong wireless performance earns price target raise at Echelon Wealth

Wireless momentum displayed in its fourth quarter results has Echelon Wealth Partners analyst Rob Goff raising his price target on Quebecor (Quebecor Stock Quote, Chart, News: TSX:QBR.B).

Quebecor today reported its Q4 and fiscal 2016 results. In the fourth quarter, the company posted EBITDA of $389.3-million on revenue of $1.05-billion, a topline that was 2.6 per cent better than the same period last year.

“I am pleased to be back at the helm of Quebecor, a corporation in excellent financial health that has experienced steady growth in recent years,” said CEO Pierre Peladeau. “I plan to continue the work of my predecessor, Pierre Dion, with the support of the solid management team, in order to pursue the development of the corporation and its businesses. We will press ahead with our business strategy, relying on the same growth drivers that have propelled the corporation’s success thus far. In 2016, Quebecor grew its revenues by 3.2 per cent and its adjusted operating income by 3.7 per cent. Once again, the telecommunications segment was responsible for the increases. The enthusiastic customer response to Videotron’s offerings continues. The subscriber base for Videotron’s mobile service passed the 900,000 mark at the beginning of 2017, solidifying Videotron’s positioning as a mobile telephony leader in Quebec. The 27.3-per-cent increase in adjusted income from continuing operating activities of Quebecor in 2016, which fully reflects the growth in the corporation’s operating results and the positive impact of the financial transactions carried out over the past two years, was also noteworthy. Quebecor also posted excellent fourth quarter 2016 results, with a 7.9-per-cent increase in adjusted operating income generated by improved profitability in each of its segments and a 46.0-per-cent increase in adjusted income from continuing operating activities.”

Goff notes that the quarter was in-line with his and the street’s expectations. He says investments the company made into wireless are now bearing fruit.

“QBR Telecom (93% of EBITDA) continues to demonstrate strong execution, supported by sustained wireless and broadband subscriber momentum,” says the analyst. “With roughly 50% of wired subscribers taking wireless, we see QBR’s bundling expertise driving subscriber gains along with wireless upselling at the time of wired renewals (customer representatives service both wired and wireless products). Outperformance on broadband subscriber adds reflected the strong traction of new packages leveraging the broadband speed advantage. With 1Gig service continuing to roll out, we see continued momentum. The introduction of next generation IPTV services should additionally strengthen the consumer bundle. Quebecor clearly paid the upfront costs of investing in its wireless platform and bearing its EBITDA drain. However, with wireless now achieving scale, its y/y EBITDA gains are likely sufficient to support 3%+ telecom growth while wired has a buffer to compete aggressively. Wireless EBITDA growth of ~$30M y/y for 2016 should move to annual growth of $40-$50M+ across the next three to five years. We see wireless adding ~$1.60/shr in EBITDA over the next four years with its equity leverage at ~$11/shr or ~28%.”

In a research update to clients today, Goff maintained his “Buy” rating, but raised his one-year price target on the stock from $44.00 to $46.00, implying a return of 16.8 per cent at the time of publication.

Goff thinks Quebecor will post Adjusted EBITDA of $1.54-billion on revenue of $4.09-billion in fiscal 2017.