MANITOBA TELECOM SERVICES INC. $33 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 64.6 million; Market cap: $2.1 billion; Price-to-sales ratio: 1.1; SI Rating: Average) has over 1.2 million telephone and wireless customers in Manitoba. It also owns Allstream, which provides integrated telephone, Internet and other communication services to businesses across Canada. Allstream accounted for 57% of Manitoba Telecom’s 2008 revenue, but just 37% of its profit.
Manitoba Telecom is launching new services, which are helping it hang on to its telephone customers. For example, its TV service, which uses high-speed Internet technology to send signals over regular phone lines, now has 34% of the Winnipeg market, up from 32% a year earlier.
Manitoba Telecom’s 2008 revenue rose 0.8%, to $1.92 billion from $1.9 billion in 2007. Strong demand for wireless, Internet and TV services was entirely responsible for the gain; Allstream’s revenues were flat. Manitoba Telecom’s earnings per share dropped 14.2%, to $2.23 from $2.60. If you disregard unusual items, including a $0.28 per share charge related to last year’s purchase of new wireless frequencies, per-share earnings rose 3.1%, to $2.98 from $2.89.
Despite the recession, Allstream’s revenues will probably hold steady in 2009. It has a wide variety of customers, including many public-sector clients. It also has a number of long-term contracts, which give it predictable revenues. As well, Allstream is lowering its costs by cutting jobs and selling excess real estate.
The company will probably earn $2.92 a share this year, and the stock trades at 11.3 times that estimate. This a reasonable p/e ratio in light of Manitoba Telecom’s high market share and steady earnings. The $2.60 dividend represented a high 87% of the company’s 2008 earnings. However, it appears safe, and yields 7.9%.
Manitoba Telecom is a buy.
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