Take a pass on Quebecor, Canaccord Genuity says

Quebecor Inc.’s (Quebecor Inc. Stock Quote, Chart, News: TSX:QBR.B) Q4/2017 results arrived in line with expectations but with revenue a bit lighter than expected, says analyst Aravinda Galappatthige with Canaccord Genuity, who maintains his “Hold” rating for the media and telecommunications company and reiterates his 12-month price target of $25.50.

On Wednesday, Quebecor reported its fourth quarter of 2017 financials, which showed profit attributable to shareholders of $65.6 million or 27 cents per share, down from $123.3 million or 50 cents per share for last year’s Q4.

Galappatthige says that after a stronger Q3, Quebecor’s media division reported revenue and EBITDA down ten per cent year-over-year, due to revenue declines in its broadcasting, newspaper and magazine publishing.

QBR’s EBITDA arrived in line with expectations and up 5.8 per cent, but the company’s cable subscriber loading was lower than expected, with 12,400 net adds versus Galappatthige’s 15,100 estimate and the consensus 16,100.

The analyst forecasts that Quebecor’s wireless division will continue to post steep EBITDA growth at a rate of 26 per cent in 2018 and 21 per cent in 2019 (wireless EBITDA grew by an estimated 58 per cent in 2017).

In a research update to clients on Wednesday, Galappatthige writes, “While we recognize the strong performance of QBR led by wireless and continued easing in its Holdco discount, we opt to remain on the sidelines given the sharp upswing in share price in 2017 and outperformance YTD vs. the rest of the space. Moreover, we also expect to see some pressure in terms of cable sub loading in the near term.”

The analyst continues to use a sum of the parts valuation, putting QBR’s core cable business at 7.25x 2018E EBITDA (down from 7.50x), its wireless business on a DCF analysis equivalent to 13.0x 2018E EBITDA and its media division at an 8.0x 2018E EBITDA (unchanged).

The analyst predicts QBR’s 2018 Adjusted EBITDA to be $1,660 million and 2019 Adjusted EBITDA at $1,705 million. The $25.50 price target represents a projected return on investment of 5.1 per cent as of publication date.