MANITOBA TELECOM SERVICES INC. $34(Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 66.7 million; Market cap: $2.3 billion; Price-to-sales ratio: 1.3; Dividend yield: 5.0%; TSINetwork Rating: Average; www.mtsallstream.com) gets 55% of its revenue from its 1.3 million telephone and wireless customers in Manitoba. The remaining 45% comes from its Allstream division, which sells integrated telephone, Internet and other communication services to businesses across Canada.
The company continues to benefit from recent upgrades to its high-speed Internet and wireless networks.
In the quarter ended June 30, 2012, it had 94,743 Internet TV users, up 3.4% from a year earlier. As well, high-speed Internet subscribers rose 1.8%, to 189,708, while wireless subscribers increased 0.2% to 490,498. These gains helped offset declines in residential (down 6.5%) and business phone customers (down 3.0%).
At the same time, Manitoba Telecom continues to lower its costs, by cutting jobs and scaling back unprofitable operations. So far, the company has reduced its annual expenses by $20.0 million. It aims to realize annual savings of $25 million to $35 million by the end of 2012.
the second quarter, to $44.5 million, or $0.67 a share. A year earlier, it earned $49.8 million, or $0.76 a share. That’s largely because a tax recovery cut its depreciation expenses a year ago. Without this benefit, depreciation costs jumped 23.3%.
Revenue fell 2.7%, to $431.6 million from $443.7 million. At the main telecom division, revenue rose 1.6% on strong demand for wireless, Internet TV and high-speed Internet services. However, an 8.0% revenue drop at Allstream offset these gains. That’s because businesses are switching away from land lines to new, less-expensive web-based conferencing services.
Manitoba Telecom’s cash flow will probably total $470 million in 2012. That’s enough to cover its projected spending on capital upgrades ($325 million) and dividend payments ($113 million). The annual dividend of $1.70 a share yields 5.0%.
The company is concentrated in Manitoba, which adds risk. However, Ottawa recently removed foreign ownership limits on telecom firms with less than a 10% market share. That could make Manitoba Telecom an attractive takeover target. It could also unlock value by selling Allstream.
The possibility of a takeover or a sale of Allstream has spurred a 14% jump in the stock’s price since the start of 2012. Even so, it still trades at a moderate 12.9 times the company’s projected 2012 earnings of $2.64 a share.
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