What are we looking for?
Where our biggest Canadian telecommunications companies rank among those in the rest of the world.
My colleague Rob Belanger and I ranked all these companies based on the price-earnings ratio. The P/E ratio is the most common and widely used valuation metric in security analysis.
We also looked for a minimum dividend yield of 2 per cent, and free cash flow of over $250-million (U.S.). The latter indicates that a company has enough cash to buy back stock, pay dividends or reduce its debt. Searching for companies that have high or improving cash flows, but undervalued share prices, can be very profitable.
All of these companies have a market cap of over $1-billion, and a debt-to-equity ratio of less than 1.5. We usually prefer low debt-to-equity ratios because the companies are then better protected in the event of a business decline. (A high ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations.)
However, low ratios may show that a company is not taking advantage of the increased profits that financial leverage may bring.
Since earnings per share growth is one of the most important indicators of a company’s health, and management’s performance, we thought it beneficial to show only those companies that had a positive earnings per share growth over the past five years.
What did we find?
While BCE Inc. and Telus Corp. didn’t shoot the lights out in any one category, both were quite acceptable, especially when you consider some of the world’s largest telecom companies, such as BT Group PLC, China Mobile and Vodafone Group, didn’t even make the list.
Both our Canadian companies were slightly above the median P/E ratio, and also above the average debt-to-equity ratio, yet still well within the acceptable limits.
If you are considering adding BCE or Telus to your portfolio you can be certain that both of them score very well when compared to other similar companies around the world.
How BCE and Telus stack up globally
|Telef Venezuela D Shs.||TDV/D||Venezuela||5.2|
|Etihad Etisalat||EEC||Saudi Arabia||8.5|
|Millicom Int'l Cellular||MIICF||Luxembourg||11.5|
All currency figures U.S. Source: Wickham Investment Counsel Inc., Bloomberg
|Company||Ticker||Country||P/E||Dvd Yld %||FCF 12M (in bil. $)||Mkt. cap. (in bil. $)||Debt/equity||EPS (5-yr. avg. grwth. %)|
|Telef Venezuela D Shs.||TDV/D||Venezuela||5.2||14.4||0.41||2.75||0||57.71|
|Etihad Etisalat||EEC||Saudi Arabia||8.5||5.6||0.76||13.21||0.45||36.24|
|Millicom Int'l Cellular||MIICF||Luxembourg||11.5||2.8||0.768||8.85||1.11||17.85|
|AT&T Inc.||T-N||United States||15.6||5||15.232||203.76||0.62||9.27|
|Philippines Long Dist.||TEL||Philippines||18.5||4.5||0.994||13.95||0.78||0.84|
|Verizon Communications||VZ-N||United States||18.9||4.6||18.013||128.89||0.57||17.4|
|Advanced Info Service||ADVANC||Thailand||22.8||4.8||1.521||20.51||0.52||24.45|
|DiGi Telecom Bhd||DIGI||Malaysia||31.7||4||0.652||13.86||0.99||6.95|