MANITOBA TELECOM SERVICES INC. $29 (Toronto symbol MBT; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 78.5 million; Market cap: $2.3 billion; Price-to-sales ratio: 1.4; Dividend yield: 4.5%; TSINetwork Rating: Average; www.mtsallstream.com) gets 60% of its revenue from its MTS division, which has 1.3 million telephone, wireless and TV customers in Manitoba. The other 40% comes from Allstream, which sells phone and Internet services to businesses across Canada.
The company recently completed a strategic review of its operations. As a result, it now plans to cut 25% of Allstream’s workforce and reduce the subsidiary’s capital spending by 20% to 30% in 2015. These moves should save Manitoba Telecom $50 million annually by the end of 2016.
In addition, the company will contribute $120 million to its underfunded employees’ pension plan, eliminating the need for additional payments over the next two years. It has also cut its dividend by 23.5%: the new annual rate of $1.30 a share yields 4.5%.
Meanwhile, Manitoba Telecom earned $26.7 million, or $0.34 a share, in the three months ended March 31, 2015, down 36.3% from $41.9 million, or $0.54 a share, a year earlier.
The decline mainly stems from $11.5 million in Allstream severance costs and $1.7 million of other restructuring charges. Overall revenue improved 1.6%, to $408.0 million from $401.5 million.
Revenue at the MTS division rose 2.9%. The company ended the quarter with 501,195 wireless subscribers (up 0.4%), 219,198 high-speed Internet users (up 4.0%) and 107,863 TV customers (up 1.4%). These gains offset weak demand for traditional phone services. Allstream’s revenue fell 1.2% as it continues to phase out its older networks and expand high-speed Internet service.
Manitoba Telecom’s long-term debt of $873.3 million is a high, but manageable, 38% of its market cap. It also holds cash of $10.1 million.
The stock is up 13% following the strategic review, partly because the plan makes a takeover by a larger telco, like BCE or Telus, more likely. That’s largely why Manitoba Telecom trades at a high 23.6 times the $1.23 a share it will likely earn in 2015.
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