MANITOBA TELECOM SERVICES INC. $24(Toronto symbol MBT; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 78.1 million; Market cap: $1.9 billion; Price-to-sales ratio: 1.2; Dividend yield: 7.1%; TSINetwork Rating: Average; www.mtsallstream.com) gets 60% of its revenue from its MTS division, which has 1.3 million telephone and wireless clients in Manitoba. The other 40% comes from Allstream, which sells telephone, Internet and other communication services to businesses across Canada.
In the three months ended December 31, 2014, the company earned $24.2 million, or $0.31 a share. That’s a big improvement over the year-earlier quarter, when writedowns and other unusual charges led to a loss of $87.8 million, or $1.25.
Overall revenue fell 0.9%, to $404.8 million from $408.5 million.
Revenue at the company’s main MTS division declined 0.2%. That’s mainly because larger wireless carriers are moving their corporate clients away from Manitoba Telecom’s older wireless systems to their own networks. As well, demand for traditional phone service continues to shrink.
However, Manitoba Telecom is doing a good job of competing for wireless subscribers. It ended 2014 with 506,568, up 1.0% from a year ago, and its churn rate fell to 1.63% from 1.67%. However, strong competition cut average monthly revenue per user by 3.6%, to $60.00.
Allstream’s revenue in the quarter declined 2.8% as it phases out its older networks and expands its high-speed Internet systems.
Due to the decline in interest rates, the company’s employee pension plan now has a deficit of $395 million, compared to $206 million at the start of 2014.
To cover this shortfall, Manitoba Telecom may have to sell shares, which would dilute existing investors’ holdings, or issue debt, which would raise its interest costs.
The company is now conducting a strategic review, which could lead to asset sales or other moves that would free up cash. It may also have to cut its $1.70-a-share dividend, which yields 7.1%.
The stock now trades at 14.9 times Manitoba Telecom’s likely 2015 earnings of $1.61 a share.
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