QBR/B - Quebecor

[Packer16]

I just started looking at Quebecor and it looks pretty cheap.  EBITDA multiple of 4.3x versus 8 - 9x for other integrated media/cable firms.  If I do a sum of the parts EBITDA multiple I come up with 7.8x.  It is cheaper than Rogers, Telus and Shaw.  I am surprised given its size that it is priced the way it is.  Given the large Canadian group of investors, am I missing something?   

Packer

[beerbaron]

Take a look at the competitive landscape, especially Bell. There seems to be a price war happening where Bells muscles back the market share it lost in the last decade. Not good for both.

BeerBaron

[Packer16]

Is this any different than Verizon FIOS versus the US Cable Cos?  The US Cable Cos have multiples of 6 to 8x EBITDA even BCE has 6x EBITDA multiple.  In the US this does not appear to have impaired the cable valuations too much.  It just appears cheap given the cable and other media assets.

Packer

[wellmont]

I just started looking at Quebecor and it looks pretty cheap.  EBITDA multiple of 4.3x versus 8 - 9x for other integrated media/cable firms.  It is cheaper than Rogers, Telus and Shaw.  I am surprised given its size that it is priced the way it is.  Given the large Canadian group of investors, am I missing something?   

Packer

does it have the same profitability, growth rate, product mix, and balance sheet as the comps?

[Packer16]

I would not say the exact same mix but similar.  The comps are more heavy into telcom(with the exception of Shaw) so it could be argued that QBR's numbers should be higher.  They have manageable debt at 2.3x EBITDA and a coverage ratio of 4.3x so higher than BB.

Packer

[wellmont]

check the paper trail of management. perhaps they have made a dumb acquisition. what has management been doing with the free cash flows? also is there a control owner or two classes of stock? compare the 10 year stock price history against the peer group. it also could be liquidity related. that would be something in your favor.

[beerbaron]

check the paper trail of management. perhaps they have made a dumb acquisition. what has management been doing with the free cash flows? also is there a control owner or two classes of stock? compare the 10 year stock price history against the peer group. it also could be liquidity related. that would be something in your favor.

No dumb acquisition for the last 10 year. They actually did pretty well in divesting Quebecor World, the printing business.

There is a control ownership, which is the Peladeau Family and the Caisse de Déopt et de Placement du Québec.

BeerBaron

[Packer16]

Part of the issue may be the stock repurchase from the Quebec pension fund at $49 per share but the repurchase creates a cheap stub stock with a borrowing rate of 4.125%.  Overall this transaction becomes accretive due to the repurchase happening at a FCF yield of about 10% and borrowing at 4.125%.  Interesting.

Packer

[Packer16]

Another aspect I didn't consider above but now have included is the fact that Quebecor only owns 77.6% of QM after the contemplated transactions.  QM effectively owns all the operations of Quebecor.  Since the QM's financial statements are consolidated at the Quebecor level the multiples stated and reported by Bloomberg and others are understated.  The adjustment is to divide the multiples by Quebecor's ownership of QM after the transactions and add the debt after the transactions to Quebecor's balance sheet.  The EV/EBITDA multiple becomes 5.8x and the FCF 17x.  These are lower than the cable co multiples range of 6.0 to 8.5x but much closer to them than I previously thought.

Packer

[momentumgeek]

I actually really like this idea. High FCF yield, good growth from quad play since they ahve just built a wireless offering that's starting to contribute to fcf and when they do take out cdp and fully consolidate qmi, the eliminate of the current holdco discount.