The Canadian telecom landscape is facing a major shake-up as Quebecor aggressively targets the high-margin revenue of the country’s biggest players, and we’ve seen this through the likes of $40 global roaming plans from its subsidiary Freedom Mobile.
In a recent interview with BNN Bloomberg, David McFadgen, managing director of institutional equity research at ATB Cormark Capital Markets, highlighted Quebecor as his “favourite name in the telecom space,” citing a strategy that mirrors its successful disruption of the landline market two decades ago.
Quebecor’s “Compelling” Wireless Play
Following its acquisition of Freedom Mobile, Quebecor has introduced roaming-inclusive plans that strike at a traditional profit centre for rivals like Bell and Rogers. Before the pandemic, roaming revenue typically accounted for $400 million to $500 million annually for the incumbents.
“They’re including roaming in all their plans, so they’re hitting the incumbents where it hurts,” McFadgen said. “Canadians can travel the world without worrying about bill shock. It’s very appealing, and the incumbents don’t want to match that because they don’t want to lose that high-margin revenue.”
McFadgen noted that Quebecor is steadily gaining market share, a trend he expects to continue “for many years.”
The Hidden Value in Rogers
While most players in the sector are seeing low single-digit organic growth, Rogers presents a unique valuation opportunity due to its massive sports portfolio. According to ATB Cormark, the market is currently assigning “zero value” to assets like the Toronto Blue Jays and the company’s 75% stake in Maple Leaf Sports & Entertainment (MLSE).
“We value the sports assets at about $11 billion — roughly $9.5 billion for the 75 per cent interest in MLSE and about $1.5 billion for the Blue Jays and related assets,” McFadgen explained.
A potential catalyst for Rogers could arrive later this year. The company is expected to buy out the remaining 25% of MLSE, combine it with the Blue Jays, and sell a minority stake. “When a third party puts a value on those assets, I think the stock will rally because it confirms the value,” McFadgen added.
Mixed Outlook for Bell (BCE) and Telus
McFadgen remains positive but more cautious on Bell. He described the company as a stable pick with a safe dividend following a recent “right-sizing.” Bell is currently targeting $2 billion in annual revenue from AI-powered solutions by 2028.
In contrast, McFadgen explicitly warned against Telus, citing major concerns over its dividend sustainability. Telus currently carries a high payout ratio that exceeds its free cash flow.
“I don’t recommend Telus. I think there are concerns about the dividend. If I were the new CEO, I’d probably cut it — I’m not saying they will, but that’s what I would do,” McFadgen stated.
Earlier today, Freedom Mobile revised its plans page two times already, ending recent promos, then introducing new plans yet again.
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