Genuity pushes sell button on Manitoba Tel
I’m not sure what it means for the economy, but when Manitoba Telecom (MBT:TSX) starts to have challenges…. Here is a snapshot on the recently released quarter from the research team at Genuity Capital Markets:
“- MTS reports weaker than expected margins and FCF – At $486 million, Q2/08 revenue was in line with our $484 million forecast and up 2.6% over Q2/07. However, EBITDA of $171 million was below our $174 million forecast and flat due to a 74 bps YoY decline in EBITDA margin. Baseline EPS of $0.81 was below our $0.85 estimate due to lower than expected EBITDA and higher than expected depreciation, and only up slightly from $0.79 in Q2/07. Finally, consolidated FCF (including pension solvency and restructuring) of $54 million was well below our $81 million estimate due to lower than expected EBITDA and higher than forecast capex. It was down 39.5% from Q2/07.
– Incumbent EBITDA was flat YoY due to margin pressure – Incumbent revenue of $228 million was below our $231 million estimate, but up 1.6%. The real disappointment was incumbent EBITDA of only $125 million. It was below our $128 million forecast and flat YoY due to a 72 bps decline in margin.
– MTS Mobility reported the worst ARPU decline in the sector and it could incur material charges – While the 8,584 net subscriber additions beat our 7,700 forecast and were flat YoY, at $56.46, wireless ARPU was well below our $57.10 forecast and down 2.1% (the worst reported by a Canadian wireless operator in the quarter). ARPU pressure could increase considerably after AWS new entrants launch service. In addition, MTS could incur $40-50 million of wireless charges over the next two years due to the transitioning of certain wireless service requirements away from Bell Mobility. Of the total, a $10 million charge was taken in the quarter.
– Allstream’s revenue growth was offset by margin pressure – At $258 million, Allstream’s revenue easily beat our $252 million estimate and was up 3.5% YoY. However, driven by a 43 bps decline in margin, at $46 million, EBITDA was only up 1.1% and in line with our estimate.
– Downgrading to a SELL and lowering target to $40.00 from $43.00 – We have lowered our margin, EPS, and FCF estimates and added wireless charges and A/R securitization. This lowers our price target and our rating to a SELL from a HOLD.”
MRM
Anything to be bring down KO… what else are you gonna come up with? Genuity was the only firm out of 8 research firms to come up with a sell rating on Manitoba Tel as of this morning…
New ratings as of 12/08:
UBS, Desjardins, Haywood and TD with a ‘Buy’
Merrill, RBC and Scotia with a ‘Hold’
Genuity with a ‘Sell’
Richard
If you think it was unfair to point out the sell news from Genuity, rare as sells are in the brokerage industry, I’m happy to amend the original post and have now done so. Life is short.
GMP also has a “Hold” rating, and as you likely know, Holds that have a 1 year share price target that’s $1.69 below the current quoted share price are often “whisper” sells. I see that Genuity and GMP are right so far by the way, with MBT down 4% in the two trading days following the release of the quarter. Talk about Waiting To Get Paid. 😉
For the record, I’m not trying to bring down anyone. This is just a blog. If OGE.UN:TSX shareholders would like a guest post on our site one day, describing why you think the O’Leary Fund is a wise investment, I’d be pleased to accommodate.
MRM