Manitoba Telecom Services

I would like to talk 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 problem I see with this stock is the lack of dividend increases. They cannot afford to increase dividends. The cash flow is not increasing, in fact, the growth figures for the last 5 and 10 years are negative (-7% per year and -2.6% per year, respectively). Also, the book value has been falling over the last 3 years and although the 10 year figures is not totally awful, the 5 year growth figure is negative (-2% per year).

Some of the 10 year growth figures are fairly good, like the growth in Revenue at 9.6% per year and the growth in Total Returns of 10.3% per year. However, there are no great 5 year figures. It is not just that 2009 was a bad year, 2007 and 2008 were also bad years. This started before the current recession. The estimates that I picked up show that 2010 and 2011 will be better, but these “better” estimates do not get this company back to even the 2007 values.

The Return on Equity for this stock is not bad and it has not been particularly bad. The ROE for 2009 at 7.7% is lower than it has been for sometime and the 5 year average of 13.2% is good. However, when you look at the Liquidity Ratio of 1.01, the current assets can just cover the current liabilities. The Asset/Liability Ratio is a lot better at 1.83 (where anything at or above 1.50 is good). However, it would seem that the book value is being affected by the payment of dividends.

Also, unfortunately, the accrual ratio is very high at 4.7%. This could call into question the quality of the earnings per share. The only good thing about the Accrual Ratio is that the Operational Cash Flow is higher than the Net Income.

As I have said previously, I no longer consider this a backbone stock and I will probably sell it off. I am a long term investor, and this stock is not the one I bought in 2006. Tomorrow, I will talk about what the analysts say about this stock.

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.