Manitoba Telecom Services $49 – Toronto symbol MBT

MANITOBA TELECOM SERVICES INC. $49 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 64.6 million; Market cap; $3.2 billion; SI Rating: Average) is Manitoba’s main provider of local, long distance and wireless telephone service, with over 90% of the market. Other services include Internet access and a digital TV service. It also owns Allstream, a national provider of communication services to businesses. Allstream accounts for roughly 55% of Manitoba Tel’s revenue, but just 40% of its profit. That’s because the business telecom market is more competitive than Manitoba Tel’s traditional operations. But Allstream’s plan to focus on small businesses that its bigger competitors tend to ignore should help it improve its roughly 10% market share. Manitoba Tel seems to be making good progress with its recent restructuring. It has already cut its annual costs by $117 million, and should easily reach its goal of saving $120 million by the end of this year. To put that in context, Manitoba Tel earned $0.79 a share (total $51.1 million) before unusual items in the second quarter of 2007. That’s up 16.2% from $0.68 a share ($46.3 million) a year earlier. Manitoba Tel pays a $2.60 annual dividend, which yields a high 5.3%. Fears that growing competi tion would force the company to cut the dividend have weighed on the stock in the past two years. But its cost cuts should let it keep paying the dividend. New service packages that combine phone, wireless, high-speed Internet and TV are also helping Manitoba Tel hang on to residential customers. The company should earn $3.00 a share before unusual items in 2007, and the stock trades at 16.3 times that figure. Manitoba Telecom is a buy.