Quebecor’s (TSX:QBR.B) recent acquisition of Shaw Communications’s Freedom Mobile operations in April 2023 enlarged the small telecom operator’s geographic coverage into more regions and established Quebecor as the fourth-largest national wireless provider. The deal impressively enhanced its revenue and operating earnings growth profile. Quebecor stock could be a value stock that fits well in a defensive and steadily growing retirement investment portfolio in 2023.
Quebecor’s accretive acquisition amplified key competencies
Quebecor’s Freedom Mobile acquisition helped its second-quarter earnings report in significant “growth” ways. Quarterly revenue surged by 25.4% year over year to $1.4 billion, operating earnings expanded, and adjusted free cash flow from operations increased by 26.1%. The company was proud to print a 104.2% increase in its telecommunications segment’s revenues from mobile services and equipment for the second quarter of 2023.
The best part is that the company managed to execute the acquisition transaction without issuing new common stock (and diluting its shareholders) and emerged with an intact balance sheet, despite increasing its debt by $2.1 billion. Shareholders may escape the harm from marginally increased leverage risks, but they may experience enhanced returns as the company unrolls a competitive strategy at a grander scale.
Most noteworthy, Quebecor identifies itself as a low-cost telecom operator and engages in aggressive low-price competition to grow its customer base. Its expansion into British Columbia, Ontario, and Alberta following the Freedom Mobile transaction expanded its total addressable market.
A subsequent decision by the Canadian Radio-Television and Telecommunications Commission (CRTC) in July to select Quebecor’s proposed rates for access to Rogers Communications (TSX:RCI.B) network enabled the low-cost service provider to offer its affordable plans to more Canadian regions outside Quebec. New regional markets and organic growth may result in an enlarged market share for the small market challenger.
Does Quebecor stock belong in your TFSA retirement portfolio?
A $10,000 investment in Quebecor stock 10 years ago could have grown to more than $29,400 today with dividend reinvestment. Past performance may not guarantee future returns. However, the telecom and French language media company has some potential to generate market-leading returns in a retirement savings and investment plan over the next five years.
One key source of investor returns could be the dividend. Quebecor has raised its dividend by 445% over the past five years. A new dividend-inspired investment today would lock in a near 4.1% dividend yield. The yield should remain intact if the investment is in a Tax-Free Savings Account (TFSA).
That said, dividend growth has slowed lately as the company executes for growth, but there remains room for some dividend raises over the next five years, since the dividend payout rate remains below 46% of earnings, while free cash flow growth has been stellar lately.
Quebecor stock has given up a nearly 20% year-to-date gain seen in April, as telecom stocks generally experience downward pressure.
Shares trade cheaper at a lower forward price-to-earnings (P/E) multiple of 10.3. Investors stand to gain once the valuation multiple grows back to 12 times next year’s earnings (it did so twice during the past five years). Capital gains may also accrue due to growing earnings per share, higher free cash flow per share, and higher market sentiment.
Market sentiment on Quebecor stock may be amplified if government policy finally blocks a publicly funded Radio-Canada from flying advertisements, increasing Quebecor’s potential advertiser client base targeting French-speaking Canadians.
