Key Takeaways for Quebecor Stock:
- Telecom now accounts for 85% of Quebecor’s revenue, as Freedom Mobile has helped the company gain 60,000 new wireless subscribers last quarter.
- We see Quebecor stock trading at a modest discount but note significant competitive limitations for investors to consider before buying.
- Quebecor is going to need to compete on prices to win market share, which will limit margin expansion. The company also accuses Bell of predatory pricing related to its fibre network.
Andrew Willis: Do you remember Wind Mobile? That’s Freedom Mobile’s previous name when I used to experience what I called “Wind-free zones” on my cellphone. But I had the cheapest plan around.
Today, Freedom Mobile carries on the tradition of being the cheapest, and its network is much better. Sounds like a recipe for sales, but Quebecor stock investors should keep in mind that the battle for wireless subscribers in Canada continues.
Quebecor Stock Is Undervalued But Competition Costs
Quebecor, as it looks to take on the well-established Canadian telecom oligopoly with its own lower-price wireless network, has encountered the effect of competition in the form of higher costs than desired. Senior equity analyst Matthew Dolgin notes that Quebecor was not pleased with the rates set by the Canada Radio-television Telecommunication Commission recently for Telus’ network, which it will rely on while expanding. Dolgin says the result of these prices will increase operating costs associated with Quebecor’s push into some new markets and could ultimately challenge the firm’s aggressive price strategy.
Quebecor is also feeling the heat on its fibre internet business after regulators mandated access to Ontario networks. Management has accused Bell of engaging in predatory pricing, which if true, really isn’t conducive to a moat.
Both the involvement of regulators in Canadian telecom and the competition at a national level don’t make for a wide moat. That said, the company still added 60,000 wireless subscribers nationwide last quarter, and we still think Quebecor’s business in Quebec is worthy of a wide moat.
For Morningstar, I’m Andrew Willis.
Quebecor Bulls Say
- Quebecor’s national wireless ambitions should benefit from a favorable regulatory environment. It should be able to offer promotions and gain share without taking significant economic losses.
- The unique culture within Quebec combined with Quebecor’s status as a local provider will allow it to maintain market share, profit margins, and returns on invested capital that competitors have been unable to achieve.
- The Media and Sports & Entertainment segments are poised to recover after a slow recovery in the years following the pandemic.
Quebecor Bears Say
- As a national wireless carrier, Quebecor will have none of the advantages that have made it successful in Quebec.
- As BCE completes its fiber-to-the-home buildout in Quebec, Quebecor will finally face a competitor that can offer comparable service, which will eat into its market share and ability to maintain such high margins.
- Secular declines in television and wireline voice customers as well as more focus on lower-value Fizz customers will keep a lid on average revenue per telecom customer, limiting growth and further pressuring margins.
The author or authors do not own shares in any securities mentioned in this article.
