BNS With Canadian telecom and cable companies providing a reduced level of disclosure on their wireline businesses, Scotia Capital analyst Maher Yaghi thinks “it has become increasingly complicated to really understand what is going on under the hood.”
Regardless, he sees the outlook for the industry as “not terribly rosy.”
“Over the last few years, disclosure by public companies has been reduced when it comes to subscriber metrics and revenues per service,” said Mr. Yaghi in a note released Monday. “On the telco side the split between residential and business NAS was curtailed, and we rarely see how wireline revenue is compiled within the 3 services that they sell in the market (i.e., TV, internet, and phone). On the cable side as well, disclosure has been reduced over time as some companies used to report all three revenue lines by service and separate SMB/Enterprise versus now aggregating reporting to sometimes just one revenue line.
“Periodically, the CRTC provides a compilation of additional visibility on the marketplace and its latest update for the month of October pushed us to review some of our assumptions given how quickly some services are seeing deterioration in economics.”
Mr. Yaghi said both TV and wireline are “now exhibiting trends that could potentially pressure companies with high exposure to these segments to underperform operationally.”
“When combining these trends and a general loss of market share from cable cos to telcos due to FTTH being marketed more aggressively, we forecast a potential worsening of the dynamic in the marketplace ... We highlight the lower exposure of TELUS, Rogers and BCE among the group and believe their higher exposure to wireless as well as other industry segments should provide them with favourable business mix to outperform,” he said.
“We also would like to remind investors of our cautious stand towards broadcasting and radio operations, which we delved into in previous reports as also seeing deteriorating dynamics.”
After reducing his financial projections for the sector, he cut his target for Cogeco Communications Inc. shares to $90 from $92.50 with a “sector perform” rating. The average on the Street is $91.80.
He maintained his targets and recommendation for these stocks:
- BCE Inc. with a “sector outperform” rating and $66.75 target. Average: $66.61.
- Quebecor Inc. with a “sector peform” rating and $31.25 target. Average: $33.35.
- Rogers Communications Inc. with a “sector outperform” rating and $71 target. Average: $70.53.
- Shaw Communications Inc. with a “sector outperform” rating and $39 target. Average: $40.20.
- Telus Corp. with a “sector outperform” rating and $32 target. Average: $33.