Quebecor’s in-region wireless business will deliver big gains, says Euro Pacific

Quebecor’s (Quebecor Stock Quote, Chart, News: TSX:QBR.B) wireless business is at the core of its growth, and the gains will come primarily from Quebec, says Euro Pacific Canada analyst Rob Goff.

Last Thursday, Quebecor reported its Q1, 2015 results. The company earned $35.9-million on revenue of $948.6-million, a topline that was up 5.7% from the first quarter of 2014.

“Quebecor grew its revenues by $50.8-million (5.7 per cent) and its adjusted operating income by $4.3-million (1.3 per cent) in the first quarter of 2015,” said CEO Pierre Dion. “Once again, the improvement was due to the excellent performance of the telecommunications segment’s operations.”

Goff says the results were basically in line with his expectations. Going forward, the analyst thinks Quebecor’s wired business will stand pat, with gains coming from its wireless business, particularly in Quebec. The analyst sees the company’s in-region wireless business to add $101 a share over the next five years. He believes that Quebecor’s ability to deliver 200 Mbps service across 90% of its subscriber base has “significantly strengthened” its broadband capabilities for the SME market.

“We believe that Quebecor’s integrated strengths across its marquee proprietary content ownership, TVA (TVA.B-T, NR), network capabilities, distribution channels, and linguistic barriers (impacting viewership and calling patterns) can support continued peer leading growth in the face of increasing competition from BCE’s Fibe TV and its own content strengths,” said Goff. “Furthermore, the competitive threat of OTTPs, such as Netflix (NFLX-US, NR), is lower within the Quebec market. Quebecor’s market strength has been demonstrated by its march to 186,800 (+117K over 12 months) subscribers to the Club Illico Club Unlimited video streaming service (a French Netflix alternative) launched two years ago in March 2013.”

In a research update to clients Friday, Goff maintained his “Buy” rating on Quebecor, but raised his one year target price on the stock from $37.00 to $38.00, implying a return of 15.3% at the time of publication.