Manitoba Telecom Services 2

I would like to continue talking about this stock (TSX-MBT) today, as the 2009 annual report is in and I own this stock. I bought this stock in 2006 and intended to make it a member of my backbone stock portfolio. For the stock I bought in 2006, I have made a return of 2.9% per year. I have changed my mind about this stock and I will probably get rid of it at an opportune time.

The thing I worry about in investing into any Telecom company is that that all are planning on getting more money from each customer as their business plan for future growth. I do not know about you, but I think I pay a lot for communication services. Monthly I pay $63.23 for the internet, $61.54 for cable, $37.25 for telephone and $11.30 for my cell. (I know, I have a really cheap cell phone plan and rarely use my cell phone.)

From anything, I have read, Canada has some of the highest charges for communications services. They are increased each year at more than the inflation rate. This cannot go on. Technologies should be getting cheaper, not continuing to be more expensive. I do not see how the current companies are going to survive, for the long term, unless than start to cut the costs of communications. This is one reason I do not think it is wise to invest in any communications company. Canada is beginning to allow other cell phone companies to operate. Hopefully, in the future we will have a better choice on other communication services.

Now that is out of the way, let’s talk about this company in particular. I looked at the Insider Buying and Insider Selling reports. The insiders generally have more options than stocks. Over the past year, there was insider selling, but only about .5M. There was no insider buying. Last time I looked at this stock, it was the same story. Insiders appear not to want to hold on any stock options they receive. As far as dividends go, the company will keep them at the current rate at present, they say they will try to continue to do this. It would appear that cash flow would not be high enough over the next two years to consider any dividend increases.

Looking at the P/E ratio, I find that the 5 year average low is 14.4 and the 5 year average high is 18. The current P/E based on estimates for 2010 is 14.3. However, I should point out that for 2009, I picked up an earnings estimate of $2.91 and it came in at $1.57. Analysts have reduced 2010 earnings from $2.95 to $2.30. Have they got it right this time? For 2010, I get a Graham price of $32.46. The current price of $32.90 is just 1% off this. I should point out that the Graham Price has been declining since 2006 because of declining earnings and book value.

When I look at the Price/Book Value ratio, I get a current one of 1.62. This is some 73% of the 10 year average. Any ratio that is 80% or less of the 10 year average shows a good stock price. The last thing to talk about is the yield. The current one at 7.9% is high. This is a high yield by any measure, although in parts of 2008 and 2009, the yield was over 8%. There are stock pickers who feel that any yield over 4.5% on such a stock probably signals problems rather being a good thing. They suggest that unless there is something that you really like about a stock, you should avoid it. They term this as chasing yields and advise that this can be a risky thing to do in purchasing stocks.

When I look to see what they analysts say, I find one Strong Buy, lots and lots of Holds, a few Underperform and some Sells. (See my site for information on analyst ratings.) There are no Buy recommendations that I can find. The Strong Buy recommendation comes with comments on the high dividend yield. The Hold recommendations expects that the high dividend yield will continue and management will do all they can to maintain this dividend. They also give a stock price over the next 12 months at or close to current stock price. The Sells recommendations say the company will have low growth in a difficult industry. Some think the company is in decline. Others think the dividend will not be maintained.

As I said yesterday, I plan to sell the stock I have at an opportune time. April and May are generally good selling months because of the seasonality of the stock market.

This company is a full-service communications company. It serves residential and business customers in Manitoba. Their Allstream division serves national business consumers. Its web site is www.mts.ca . See my spreadsheet at www.spbrunner.com/stocks/mbt.htm .

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.