MANITOBA TELECOM SERVICES INC. $33 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 65.7 million; Market cap: $2.2 billion; Price-to-sales ratio: 1.2; Dividend yield: 5.2%; TSINetwork Rating: Average; www.mtsallstream.com) has over 1.3 million telephone and wireless customers in Manitoba. This business now accounts for 54% of the company’s revenue. The remaining 46% comes from its Allstream division, which provides integrated telephone, Internet and other communication services to businesses across Canada.
In 2010, Manitoba Telecom cut its quarterly dividend by 34.6%, to $0.425 a share from $0.65. The stock now yields 5.2%. The company also let shareholders reinvest their dividends in new shares at a 3% discount. These moves freed up cash for investments in its wireless and Internet networks.
As a result of these investments, the company was able to start up its new Manitoba wireless network in March 2011. This new network is letting Manitoba Telecom sell more smartphones, including the hugely popular Apple iPhone. Strong demand for these phones and wireless data helped push up the company’s wireless revenue by 8.9% in the second quarter of 2011. Average revenue per user rose 3.8% from a year earlier.
In addition to its wireless upgrades, the company is switching its copper-wire network to a fibre-optic system. It should complete this project in 2015.
When this project is finished, it will let Manitoba Telecom sell more high-speed Internet and digital TV services. These are already growth areas for the company: in the latest quarter, revenue from high-speed Internet services rose 7.1%. Internet-based TV revenue jumped 17.8%.
At the same time, the Allstream division is benefiting from its shift to Internet-based communication services. Right now, the division is focusing on clients in multi-tenant buildings that are located near existing fibre-optic networks.
Allstream’s revenue fell 2.8% in the second quarter, but that’s mainly because lower revenue from local and long distance services offset a 10.6% gain from sales of Internet-based services.
Manitoba Telecom has gained 30% in the past year, and now trades at 12.7 times the $2.59 a share that it should earn in 2011.
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