MANITOBA TELECOM SERVICES INC. $33 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 66.2 million; Market cap: $2.2 billion; Price-to-sales ratio: 1.2; Dividend yield: 5.2%; TSINetwork Rating: Average; www.mtsallstream.com) has 1.3 million telephone and wireless customers in Manitoba. This business now accounts for 55% of the company’s revenue. The remaining 45% comes from its Allstream division, which provides integrated telephone, Internet and other communication services to businesses across Canada.
Like BCE and Telus, Manitoba Telecom continues to profit from fast-growing demand for smartphones and wireless service. It ended 2011 with 496,432 wireless subscribers, up 2.6% from a year earlier. About 41% of users under long-term contracts had data plans, up from 27% in 2010.
The company is also seeing strong demand for its fibre-optic Internet and TV services. It now has 188,946 high-speed Internet customers (up 2.9% from 2010) and 95,456 TV subscribers (up 6.1%).
Even with these gains, overall revenue in 2011 fell 1.0%, to $1.77 billion from $1.78 billion in 2010. That’s because revenue at Allstream fell 4.6%, as businesses switch away from traditional phone service to new less-expensive web-based conferencing services.
Earnings in 2011 rose 18.3%, to $167.1 million from $141.3 million in 2010. Earnings per share rose 17.0%, to $2.55 from $2.18, on more shares outstanding. The company continues to cut jobs and scale-back unprofitable operations. These moves saved it $28.8 million in 2011.
Manitoba Telecom’s cash flow in 2012 will probably total $460 million. That’s enough to cover its projected spending on capital upgrades ($330 million) and dividend payments ($112 million). The current annual dividend rate of $1.70 a share yields 5.2%.
The company’s geographic concentration on Manitoba adds risk. However, the stock trades at a moderate 13.3 times its likely 2012 earnings of $2.49 a share. Moreover, the company could become an appealing takeover target if Ottawa loosens its rules regarding foreign investment in telecom companies.
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