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Topic: How To Invest

MANITOBA TELECOM $28.80 – Toronto symbol MBT

MANITOBA TELECOM $28.80 (Toronto symbol MBT; Shares outstanding: 78.9 million; Market cap: $2.3 billion; TSINetwork Rating: Average; Dividend yield: 4.5%; www.mts.ca) gets 60% of its revenue from its MTS division, which has 1.3 million TV, telephone and wireless users in Manitoba. The other 40% comes from Allstream, which sells phone and Internet services to businesses across Canada.

In May 2015, the company completed a strategic review of its operations. As a result, it now plans to cut 25% of Allstream’s workforce and reduce the subsidiary’s capital spending by 20% to 30% in 2015. These moves should save Manitoba Telecom $50 million annually by the end of 2016.

In addition, the company will contribute $120 million to its underfunded employees’ pension plan, eliminating the need for additional payments over the next two years. It has also cut its dividend by 23.5%: the new annual rate of $1.30 a share yields 4.5%.

Meanwhile, excluding restructuring and other onetime costs, Manitoba Telecom earned $0.31 a share in the three months ended June 30, 2015, down 16.2% from $0.37 a year earlier.

Revenue declined 1.2%, to $398.3 million from $403.3 million.

The stock is up 15% following the strategic review, partly because the plan makes a takeover by a larger telco, like BCE or Telus, more likely. That’s largely why Manitoba Telecom trades at a high 23.4 times the $1.23 a share it will likely earn in 2015.

Manitoba Telecom is a hold.

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