Analysts Foresees Bigger Growth in Canadian Telecoms than in US Peers

by Istvan Fekete on November 21, 2014

Although the Canadian telecom market is considered by some a mature one, Citi Research sees a bigger potential for growth than in their US peers, reports the Leader Post.

In a note sent to the Canadian newspaper, analyst Kevin Toomey initiated coverage of the sector with buy ratings on Telus and Bell, and ranked the biggest of all, Rogers, as neutral. In his forecast, he highlighted several factors that should drive better relative revenue growth through 2018.

What’s interesting is that Toomey foresees a compound annual revenue growth of 2% for Canadian carriers, versus less than 1% for US telecom companies. From his research it is evident that Canada offers a better industry structure, lower mobile device penetration, deep wireless spectrum holdings, less secular pressures on wireline, and favourable demographics due to a wealthier population growing at an above-average pace.

“Valuations of the Canadian communication stocks have risen over the past month, but we believe there is still room for upside as these Canadian stocks deserve a premium valuation to the broader average of Telco & Cable stocks,” Mr Toomey said in a note to clients.

The top pick of the Citi Research analyst is Telus, Canada’s no. 2 wireless player. Toomey projects a jump in wireless and wireline margins, which, he says, should drive above-estimate EPS in 2015 and 2016.

“We also forecast significant future returns of capital to shareholder from the combination of growing dividends & share repurchase programs,” he said.

He also recommends Bell, due to prospects for improving wireless performance and acquisition-related synergies. But what he doesn’t mention is that, according to the most recent CCTS data, Bell has the highest number of wireless-service complaints.

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Written by: Istvan Fekete. Follow by: RSS, Twitter, Facebook, or YouTube.

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