01.21
Manitoba Telecom (MBT): $35.17 – Rating Lowered To Underperform
Underperform (prev: Sector Perform), Average Risk, Price Target: $33.00
Dividend Secure, but Allstream Will Remain a Drag, and Valuation Above Target.MBT shares have an attractive yield, but given the combination of sluggish business markets and the recent share price run, MBT shares now trade above the $33 target price.
MBT’s 8% dividend is among the highest common equity yields in the S&P/TSX and RBC CM believes there is limited risk of a dividend cut. With the recent uptick in MBT shares, the stock now trades in line with peers (5.3x 2010E EV/EBITDA vs. peers at 4.8-5.5x). RBE CM believes MBT shares warrant a modest discount given: (1) its slower growth profile; (2) larger exposure to the enterprise segment, which is facing meaningful pressure from the economy; and (3) limited cash flow flexibility – negative
cash flow in 2010 (especially if MBT loses the appeal on the $100MM court-mandated pension liability) with only a modest recovery in 2011.
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