Desjardins' Dubreuil on Telcos Desjardins Securities analyst Jerome Dubreuil cut his price targets on Canada’s big three telecoms on Thursday as he looked ahead to second-quarter results.
His target on BCE Inc. (
) was cut to C$48 from C$50, on
Rogers Communications Inc. (
) to C$70 from C$74, and on
Telus Corp. (
) to C$25 from C$25.50.
Overall, he is advising investors to remain cautious on the sector, even as a decline in interest rates should act as a tailwind in coming months.
“The recent improvement in inflation data as well as green shoots in terms of wireless competition are positives for the sector in absolute terms. However, we would not recommend an overweight position in the sector just yet given (1) the uncertainty related to back-to-school promotional intensity; (2) the risk related to the upcoming TPIA decision; (3) our expectation that this quarter’s results will lead to questions regarding top-line guidance; and (4) our view that consensus 2025 wireless net additions remains too ambitious,” he said in a note to clients Thursday.
“We have reduced our target prices for the Big 3 on lower medium-term growth expectations—while competitive intensity could abate, we expect it may remain relatively high for several years as QBR aims to gain market share in wireless, RCI establishes its western franchise and BCE increases penetration on its newly deployed FTTH. The back-to-school period could potentially offer a better (either lower or derisked) entry point,” he added.
Regarding his outlook for the three big telecoms specifically, he said:
On BCE: “We have reduced our target ... mostly as a result of lower top-line growth expectations in both the near and longer term. We believe the company should be able to meet EBITDA consensus in the quarter as its restructuring program starts to bear fruit, but our wireless postpaid net additions forecast of 82,000 is below consensus of 97,300. ... While our base case is that the dividend will not be cut in February 2025, it does not necessarily mean this would be the best way forward for the long-term potential of the company given the high payout and slow improvement on this front. The shares’ relatively high valuation (especially vs RCI) and the company’s low growth make it difficult for us to recommend buying the stock before the dividend decision, which is expected early next year.”
On Rogers: “We knew that RCI was dominant in the new-to-Canada category. However, we were surprised when management recently indicated that RCI had a roughly two-thirds market share in this segment, which was more than we previously thought. As we expect the federal government’s curb on immigration to gradually take effect later this year, we have reduced our wireless net additions forecast for RCI more than we did for peers. However, we continue to expect RCI to be the net additions leader in the coming years. In terms of ARPU, the lapping of the Shaw Mobile acquisition should help the sequential comparison of year-over-year ARPU growth. That said, we do not believe RCI is immune to competitive pressure, and we have lowered our ARPU forecast in the quarter.”
On Telus: “Similar to its peers, we expect T’s top line to be affected by competitive dynamics in wireless as well as in Western Canada as RCI works to improve the Shaw assets. However, given that T has progressed further in its restructuring program (announced in August 2023), the benefits of profitability should be on display in the quarter. That said, similar to peers, we have slightly reduced our target price as a result of our reduced top-line growth forecast due to expectations of protracted competitive intensity. T should nonetheless continue to generate strong, mid-single-digit EBITDA growth in the quarter.”
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