Telecom & Cable Services – When Will Winter End for Canadian Telecom_

Key Points Industry Overview * Mixed Results: The industry is experiencing mixed results in terms of earnings and cost of capital. ROIC incorporates returns from operating assets and capital allocation decisions, including acquisitions and spectrum investments. * Competitive Pressure: The Canadian telecom industry is facing competitive pressure and slowing growth, partly due to initiatives from the Canadian Radio-television and Telecommunications Commission (CRTC) promoting competition. * Macroeconomic Outlook: The macro team believes the Canadian economy will remain in excess supply, leading to softer growth in 2H24 and 2025 compared to the central bank's October projections. * Wireless Market: The wireless market is experiencing significant competition, with Quebecor capturing market share with lower prices and aggressive strategies. * Fixed Broadband: Telus and Bell Canada are expected to benefit from their continued fiber builds in the fixed broadband market. Company-Specific * BCE: BCE has underperformed the sector for several years and currently has a 11% dividend yield reflecting growth and capital structure concerns. The company's dividend payout ratio exceeds FCF generation, and the Ziply acquisition is expected to be dilutive to FCF at least until 2028. * Rogers: Rogers is focused on de-leveraging after the Shaw acquisition, but the challenging industry growth is occurring at an inopportune time. The company's recent structured equity financing is creative but has created some confusion among bond and equity holders. * Telus: Telus is well-positioned in the broadband market due to its fiber-rich network and ability to bundle mobile with other services. The company has a more balanced risk/reward profile compared to BCE and Rogers. Valuation and Outlook * Valuation: The report presents a valuation framework focusing on growth and ROIC rather than yield. It considers factors such as scale, profitability, leverage, financial policy, and shareholder return. * Outlook: The report expects the Canadian telecom industry to continue facing challenges, including competition, regulatory changes, and economic conditions. The outlook for BCE, Rogers, and Telus is cautious, with a focus on potential risks and opportunities.