Upgrade Desjardins Securities analyst Jerome Dubreuil expects Canadian telecommunications companies to see a further recovery from pandemic lows.
“While Canadian telecoms have withstood the impact of the pandemic with relative resilience (we expect Canadian telecom industry revenue in 2021 to be 3 per cent higher than in 2019), we believe there is potential for reopening catch-up in 2022,” he said. “Certain areas such as roaming fees, B2B, media, as well as improved demographics, offer a strong recovery runway. We expect these factors should help adjusted EBITDA in the sector to grow 5.3 per cent and 3.4 per cent in 2022 and 2023, respectively.”
However, in a research report previewing 2022 for the sector, he warned investors that “reopening growth is not as valuable,” noting: “During 2022, it will be important for investors to differentiate between growth originating from the pandemic catch-up and from industry fundamentals and competitive advantages. We believe the former is not as repeatable as the latter. For example, we expect RCI to generate the strongest EBITDA growth in the sector in 2022, which could be harder to achieve the following year.”
Mr. Dubreuil said Telus Corp. remains his preferred stock heading into the new year, raising his target by $1 to $33 with a “buy” recommendation. The average on the Street is $31.50.
“We estimate that T’s pure telecom operations trade at a lower multiple than BCE’s, which provides an attractive entry point for T given the company’s advanced fibre deployment,” he said. “The major improvements to margin and FCF we foresee for T in 2023 are also attractive in our view as we understand that the valuation of T by several sell-side analysts is not yet based on 2023 estimates.”