Valuation Considerations for the New Wireless Era
Event: None
Impact: NEUTRAL
How much are investors currently paying for the wireless segments of BCE, TELUS, and Rogers? This is a question we attempt to answer in this note, with Exhibit 1 showing that the implied value of Rogers Wireless is about 14% lower than TELUS Mobility and about 19% lower than Bell Mobility on both an EV/EBITDA and a value- per-subscriber basis.
Why ask this question now? A verbatim excerpt from the Quebecor filing last week (Exhibit 2) signals that proposed M&A activity could lead to a stronger near-national competitor in the Canadian wireless market. The company would more than double its scale and it would cover the four largest provinces, as opposed to just one. The 20-year transport deal that Quebecor negotiated should allow the company to focus its financial resources on marketing and subscriber growth as opposed to excessive capex. The terms "aggressive" and "disruptive" are cited by Quebecor, which points to a potentially more challenging backdrop for subscriber and ARPU growth for the three national incumbents. So we believe it is relevant for investors to understand the implied valuations, and thus relative growth expectations, for the wireless segments of the big three.
There are no target price changes and no meaningful estimate changes in this report, but note that we have added some costs for Rogers in Q3/22 related to the recent outage (service credits are not expected to recur in 2023; so there was no impact on our 2023-based target price). We have also shifted a bit of wireline segment EBITDA for BCE from Q2/22 into future quarters, but the impact on our 2023-based target price was immaterial (updated Q2/22 and annual estimate tables for BCE and RCI are shown in exhibits 4-7).
Implied Valuation Math
In order to derive a standalone valuation for wireless assets, we have extracted a value for non-wireless segments in Exhibit 1, including wireline telecom, media, and TELUS International. Note that we have not reflected hidden assets such as sports teams or non-controlling interests in other public companies. Furthermore, as with all of our analysis and forecasts to-date, we have not included Shaw or any expected synergies in our figures for Rogers.
We have attempted to give credit to both the pacing of fibre (FTTH) deployment by each carrier, as well as the growth profile of non-telecom assets, as follows:
TELUS: Urban FTTH deployment should be virtually complete by the end of 2022, and healthcare/agriculture IT services should have faster growth than media businesses; so we have stripped out non-wireless EBITDA at 9x.