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What are we looking for?

Possible buying opportunities among Canada’s telecom stocks.

The screen

We used StockCalc’s screener to select the eight largest telecom stocks on the TSX. We then use StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

  • Discounted cash flow (DCF value) is a valuation technique where cash flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its historical price-to-book ratio.

If we have analyst coverage we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30.

What we found

The eight stocks are ranked by market capitalization in the accompanying table. Note the percentage difference between each stock’s recent closing price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from the models and analyst target data.

From a valuation perspective all of the companies look undervalued – ranging from less than 2 per cent for Telus Corp. to 22.1 per cent for Shaw Communications.

It is also worth noting these stocks are traditionally held for their dividends as much as for capital gains. With the exception of relatively tiny TeraGo Inc., which does not pay a dividend, all of the companies on this list have maintained or raised their payouts since the start of the pandemic.

Let’s look at a couple of these companies:

BCE Inc. offers wireless, broadband, television and landline phone services. Its nearly 10 million wireless customers constitute about 30 per cent of that market. It is also the incumbent local exchange carrier (legacy telephone provider) throughout much of Central and Eastern Canada. Additionally, BCE’s media segment holds television, radio and digital media assets and the Canadian licensing rights to movie channels including HBO, Showtime and Starz. In 2019, the wireline segment accounted for just over half of BCE’s total EBITDA, wireless made up 38 per cent, while media provided the remainder. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.)

Shaw Communications Inc. is one of the biggest providers of internet, television and landline telephone services in Western Canada and Northern Ontario. In fiscal 2019, 80 per cent of Shaw’s total revenue came from this wireline business. Shaw is also a wireless service provider after acquiring Wind Mobile in 2016; as a smaller carrier, Shaw has favoured-bidding status in spectrum auctions. As mentioned, Shaw is showing up as the most undervalued on our list and this is supported by all our valuation models.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Select TSX-listed telecom stocks

CompanyTickerMkt. Cap. ($ Mil.)Recent Close ($)StockCalc Val. ($)Diff. (%)DCF Value ($)Price Comps. ($)ABV ($)Analyst Tgt. ($)1Y Ttl. Rtn. (%)Div. Yld. (%)
BCE Inc.BCE-T 50,533.6 55.8858.584.862.5751.2880.9260.83-7.75.9
Telus Corp.T-T 31,979.0 24.7925.211.756.7421.7530.6125.722.84.7
Rogers CommunicationsRCI-B-T 30,521.1 59.9865.599.472.8864.1289.2666.57-2.63.3
Shaw CommunicationsSJR-B-T 11,745.9 22.8527.8922.134.1828.6227.1628.38-12.75.2
Quebecor Inc.QBR-B-T 8,296.9 33.0835.647.763.1330.6937.8838.192.82.2
Cogeco CommunicationsCCA-T 4,513.4 94.18102.889.2112.6678.87102.24119.10-16.52.5
Cogeco Inc.CGO-T 1,243.2 77.7485.5710.193.1574.4284.71130.00-24.02.4
TeraGoTGO-T 105.3 6.307.0011.11.156.844.538.00-30.00.0

Source: StockCalc

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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