Quebecor Inc.

Quebecor Inc. (TSX: QBR.B) is a communication company which operates through Telecommunication segment, offering television distribution, internet access, business solutions, cable and mobile telephony and over-the-top video services.

Q2FY20 Financial Highlights: Quebecor Inc. declared its second-quarter results, wherein the revenue stood at CAD 1,003.8 million, marginally lower than CAD 1,056.9 million in the previous corresponding period (pcp). Despite a slide in the revenue, adjusted EBITDA came at CAD 475.7 million, higher than CAD 455 million in pcp. The increase was aided by significant growth from customer equipment sales coupled with an improvement from mobile telephony segment and a slight improvement from its telecommunication segment. The positives were partially offset by a subdued performance from its Media and Sports and Entertainment segments. The group’s net income improved to CAD 174.9 million as compared to CAD 140.2 million in pcp. Cash flow from continuing operating activities increased by CAD 245.4 million to CAD 715.1 million increase due primarily to the favorable net change in non‑cash balances related to operating activities. The company’s cash flow from operations was up by 12.7% on y-o-y basis to CAD 621.1 million due to an increase in adjusted EBITDA, coupled with a CAD 39.4 million decrease in additions to property, plant and equipment.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to a decline in consumer spending, average mobile billing per unit (ABPU) stood at CAD 50.32 in the second quarter of FY20, as compared with CAD 52.56, a year ago. Continuation of the same trend is likely to weigh on the margin.

Valuation Methodology: P/E Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of QBR.B stood resilient in the recent past and appreciated ~13% and ~12% in the last six months and one-year, respectively. The business is categorized under the essential services and did not face suspension in its operations, which is a positive. The company showed excellence in its operations and financial management, combined with higher quarterly growth as compared to the major national industry players, which is commendable looking at the current economic scenario. The company’s subsidiary TVA Group reported an increase of 1.8 percentage points in its market share to 42.3%, which is impressive. The company retains a solid financial position and is evaluating and prioritizing investing in strategies that will be profitable over the long-term, thereby maintaining its position as an innovation leader. The acquisition of the Théâtre Capitole in Québec City, 1,300‑seat venue, is likely to enhance the performance of the media segment.  We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered industry (Telecommunication-Services) median on the next twelve months (NTM) basis. Hence, considering the above factors, we recommend a ‘Hold’ rating on the stock of QBR.B at the closing price of CAD 33.69 on September 28, 2020.

QBR.B daily price chart. Source: Refinitiv (Thomson Reuters)

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