MANITOBA TELECOM SERVICES INC. $31 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 64.7 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.7; Dividend yield: 8.4%; SI Rating: Average) is the main provider of telephone services in Manitoba. The company’s Allstream subsidiary sells integrated telephone, Internet and other communication services to businesses across Canada. The company gets 70% of its profit from its Manitoba telephone business. However, a new alliance with Rogers Communications Inc. (Toronto symbol RCI.B) should broaden its geographic reach.
The two companies are building a new high-speed wireless network in Manitoba. This alliance will make Manitoba Telecom more competitive in Manitoba, and let the company use Rogers’ existing network to sell more wireless services to its business customers in other parts of Canada.
In 2009, Manitoba Telecom earned $103.9 million, or $1.61 a share. That’s down 29.5% from $147.4 million, or $2.28 a share, in the prior year. If you disregard restructuring costs and other unusual items, earnings per share would have fallen 12.9%, to $2.64 from $3.03. Revenue fell 3.1%, to $1.8 billion from $1.9 billion.
Manitoba Telecom continues to restructure its operations in response to the lower revenue and earnings. This restructuring, which mainly consists of job cuts, saved the company $58.4 million in 2009. It aims to lower its annual costs by an additional $30 million to $40 million in 2010.
The company expects to earn between $2.00 and $2.50 a share in 2010. The stock trades at 13.8 times the midpoint of that range.
Manitoba Telecom’s $2.60 dividend yields 8.4%. The dividend is also a high 115.6% of the company’s expected 2010 earnings. This high payout ratio has raised fears that the company will cut the dividend. However, Manitoba Telecom’s cost cuts should help it maintain the current rate. It’s partnership with Rogers should also start to pay off when the new network starts operating in late 2010.
Manitoba Telecom is a buy.
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