Solid quarterly results and an aggressive new product and branding pipeline have Rob Goff of Echelon Wealth Partners remaining bullish on Canadian telecom play Quebecor (Quebecor Stock Quote, Chart, News TSX:QBR.B). The analyst reaffirmed his “Buy” rating and $38.00 target in a client update on Monday, which represented a projected 12-month return of 26.7 per cent at the time of publication.
Quebecor delivered its fiscal second quarter on August 8, with the company generating revenues of $1,056 million, up 1.8 per cent year-over-year, and $455.0 million in EBITDA, a 6.8-per-cent jump over the previous year.
President and CEO Pierre Karl Péladeau said he was very satisfied with the results, pointing to subscriber increases in Videotron’s mobile segment and improved EBITDA from TVA Group despite deep budget cuts, along with better subscriber numbers from its discount cellular carrier Fizz Mobile.
“We continue investing and diversifying our revenue streams by broadening our range of products and services and expanding geographically in order to give consumers a real choice. Building on our successes, which have delivered attractive returns for our shareholders and a stimulating work environment for our employees, we are more firmly focused on the future than ever,” said Péladeau in the accompanying news release.
Quebecor’s top line came in lower than the consensus estimate of $1,068.9 million and Goff’s $1,094-million forecast. EBITDA was modestly above expectations, with the Street calling for $445.9 million and Goff expecting $444 million.
Drilling down, at 38,300 added wireless subscribers versus 31,900 added a year ago, QBR beat the consensus 36,000 and Goff’s 35,000. Wired subscribers were a slight miss, however, with cable internet losing 3,900 subscribers and cable TV losing 24,000 subscribers.
Goff says that while QBR typically gets a positive forecast fine tuning and ensuing price target upgrade (during 11 of the last 12 quarters for Echelon Wealth), the analyst noted that his target is high compared to the Street consensus and thus is staying put with his. Goff’s 2019 EBITDA forecast took a modest trim due to increased marketing expenditures over the second half of 2019. The analyst is now calling for 2019 revenue and EBITDA of $4,331 million (down $41 million) and $1,841 million (down $10 million), respectively.
Quebecor stock: chance of a dividend hike…
Goff says that he likes the chances of dividend yield growth from Quebecor.
“QBR has historically been awarded a discounted valuation to its peers despite peer leading execution,” says Goff. “We are bullish on the prospects of moving to a dividend yield/growth model with strong FCF support. With its successful spectrum purchase for $256 million covered by its divestiture of 4Degrees Colocation Inc. data centres for $261.6 million, investors continue to see a much clearer path as QBR moves towards a dividend growth model where we see positive revaluation considerations as wireless continues to drive financial results and QBR aggressively deleverages. Post Q119, decision to increase its quarterly dividend from $0.055 to $0.1125, QBR confirmed its intention to move its dividend to 30-50 per cent of free cash flow over the next three years,” Goff wrote.
The analyst says that after the quarterly results, he is looking for a modest but positive shift in the consensus price target. At the time of publication, across 13 analysts covering QBR, ten have Buy ratings and 11 price targets are between $34.00 and $38.00 per share with one exception at $31.00.