Industry Overview
Our Sector Outlook
The majority of the names under our coverage universe ended the quarter with positive share price performance, with the only exceptions being TGO/ATUS/CHTR/ LBRDK/RCI/TELUS.
With calendar Q1 being a seasonally slow period for the Canadian telecom industry, our overall view for the sector has not changed materially. We continue to believe that growth over the next few years will come from the development of 5G, which has been described by many industry players as a "marathon and not a sprint". The ongoing network investments (such as the accelerated capex programs announced by BCE/TELUS) provide the infrastructure required to provide the 5G services.
On the regulatory front, we are expecting final decisions regarding MVNO/TPIA in the telecom space, and further detail on Bill C-10 as well as the Commercial Radio Policy review in Media over the course of the year. Although we believe that the outcomes for these items will be favourable based on the conversations that we have had with industry players, we will keep track of developments as each of these items will have significant implications for the names under our coverage. Furthermore, the 3500MHz spectrum auction is planned to take place in June, which is one of the key spectrum bands for 5G services.
Looking at the U.S. cablecos, we remain somewhat cautious with HOLD ratings for Altice USA and Charter given the share price outperformance in 2020 (ATUS up 39% and CTHR up 36%). We continue to like U.S. cable assets for their long-life, infrastructure-like characteristics, but 2020 is expected to be a tough comparable period. We have kept our BUY rating for Comcast as we see reopening tailwinds in both advertising (see next point) and theme parks, as well as potential growth at Sky.
As the economy starts to reopen over the course of 2021, we believe some of our non-telecom names under coverage may see tailwinds, namely in advertising. Advertising for specific verticals (e.g. travel, hotels, entertainment) has yet to recover to pre-pandemic levels, but this has been offset by other verticals (e.g. ecommerce, insurance, health care) in the latter half of 2020. Advertisers looking to capture some of the potential "revenge spending" by demand from pent up consumers through 2021 should provide tailwinds for Corus (ACTION LIST BUY), AcuityAds (BUY), and Stingray (HOLD), in our view. Furthermore, Stingray could also see tailwinds to its commercial music division in the U.S. as more retail outlets return to relative normalcy.
Our Sector Stance: Overweight
We maintain our Overweight stance, with BUY or ACTION LIST BUY ratings on 12 of our 15 names under coverage. We remain positive with respect to the Canadian wireless industry, with longer-term benefits from 5G in the horizon. We note that many of the names under our coverage generate stable FCF and strong dividends, so the sustained low interest rate environment should help support valuations across our sector, in our view.