Why Quebecor stands out in telecom

TD Securities analyst Vince Valentini is pounding the table on

Quebecor Inc., telling clients no other stock in the Canadian telecom space offers the same combination of value and growth. He believes the seven-per-cent pullback in Quebecor shares since the company reported first-quarter results is “completely unwarranted.”

The company’s early stage wireless business had record average revenue per user (ARPU) growth of 15 per cent, revenue growth of 45 per cent, net subscriber additions up 61 per cent, and EBITDA at an all-time high of $13 million.

As Quebecor’s wireless business matures, Valentini expects it will attract more investor attention, and that can only be positive for the stock. The analyst also noted that the market seems to be applying little or no value to the company’s wireless division so far.

He anticipates Quebecor will have much better EBITDA and free cash flow per share growth than its Canadian telecom peers, partly because of growth in wireless as well as the positioning of its Vidéotron cable unit in Quebec. Vidéotron has industry-leading customer service numbers, and a video business that has already made the shift into the pick-and-pay channel packaging that Canadian television customers are clamouring for. Despite all that, Quebecor shares trade at just 5.6x estimated EBITDA for 2015, while North American cable stocks trade between 6.3x and 9.7x.

Valentini estimates the market is currently applying a 25-percent holding company discount to Quebecor shares. But with its non-core asset sales in the past 18 months, the analyst noted that the company’s core cable and wireless assets in Quebec now represent 96 per cent of his gross asset value, “so we seriously question why such a large holdco discount is justified.” TD rates Quebecor shares an action list buy with a price target of $42.