Manitoba Telecom Services Inc

I own this stock (TSX-MBT). I had bought some of this stock for all three of my accounts of Trading, RRSP and Pension Locked-in in 2006. I was looking for a save dividend payer and TD Waterhouse was recommending it. In 2010, I was giving hope of earnings much from this stock and sold all from my Trading and Pension Accounts and some from my RRSP. I still have some in my RRSP account.

Over all, I have a Total Return of 3.5% per year. However, dividend portion of total return is 6.7%, so I lost capital. My investment in this company is better in my RRSP with a Total Return of 4.05%. Here again, the dividend portion is 6.7% of the total return. I have lost some 12% in capital gains since I bought this stock. This certainly has not been one of my best moves in stock buying.

This is a dividend paying stock which reduced their dividends in 2010 by almost 35%. The move was not entirely unexpected because they have been paying over 100% of their earnings in dividends since 2007. The Dividend Payout Ratio from Cash Flow was not that bad at around 34%. DPRs for 2011 are expected to be 67% for earnings and 25% for cash flow. Analysts do not expect any dividend change for 2012 or 2013.

Total Return is not good, with a negative 2.5% per year over the past 5 years. Total return has grown just 4.7% per year over the past 10 years. The dividend portion of total return has been 6% and 6.2% per year over the past 5 and 10 years. Therefore there has been capital loss over both these time periods.

Growth has generally not been good, with 10 year growth being better than the 5 year growth. Basically 5 year growth is non-existent. For example revenue growth for the last 5 years is a negative 1.5% per year. 10 year growth is 4.3% per year.

The 5 year growth in earnings is a big negative 10.3% per year. However, 10 year growth is good at 8.5% per year. Growth is cash flow is 0% for the last 5 years and 5.2% per year for the last 10 years.

Growth in Book Value is non-existent. My spreadsheet shows spreadsheets shows 5 and 10 year negative growth of 12% and 1.6% per year. Book Value has been going down since 2007. (They were paying more than 100% of earnings in dividends.) Also, there was a 40% decreased in 2011 showing up with the change to the new IFRS accounting rules.

About 28% of the decrease seems to be directly related to the new accounting rules. If the new accounting rules had been in effect between 2009 and 2011 the decrease in Book Value for 2010 would have declined 10.5% rather than the originally reported 2.8%. The decline in 2011 would have been 6.9% rather than 40%. However, whichever way you look at it the book value is declining and has been for a while. This is not good.

The Return on Equity for 2011 looks very good at 21.2%. The 5 year median ROE is also good 10.4%. However, when you look at the ROE based on comprehensive income it is very much lower at 3%. A lot of the difference is because the company lost money in their employee’s defined benefit and other benefits plans. You worry about a company with a big difference in the ROE on net income and on comprehensive income as it shows that the quality of the net income for the company may not be good.

The last thing to look at is debt ratios. The current Liquidity ratio is really low at just 0.45. If it less than 1.00 it means that current assets cannot cover current liabilities. If you add in cash flow after dividends you do not quite get to 1.00, but get to only 0.99. The current Debt Ratio is a little low at 1.42. The current Leverage and Debt/Equity Ratios are bit high, at 3.40 and 2.40.

I think I need to find an exit point and get some stock to replace this one.

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 here Manitoba Telecom. See my spreadsheet at 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.