Top-quality telecoms represent good value

Article Excerpt

The traditional telecommunications service providers, such as Telus and BCE, are trading at substantially lower valuations than other “infrastructure” type companies. This is not only true for Canadian companies, but also for U.S. and other similar companies in Europe. Infrastructure type companies such as telecommunications, pipelines, utilities, and railroad companies have delivered comparable financial results over the past five years—so this provides scant reason for the significant valuation differences. All in all, as we’ll show below, telecom companies offer significant value for investors. Similar characteristics Although there are obvious differences between telecommunication companies, utilities, railway operators, or pipelines, they could all be considered as dominant players with significant barriers to entry. These barriers include regulatory licensing requirements, as well as large capital requirements to establish and maintain their businesses. These characteristics generally provide a level of protection against competition, and high levels of profitability and strong cash flows over the medium to long term. However, as these companies are normally large and mature, growth…

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