Manitoba Telecom Services (MBT): $32.71 - Cautious 2010 Outlook
Underperform, Average Risk, Price Target: $31.00 (prev. $33.00)
Adjusting for the sale of MTS' IT consulting business, fourth quarter results were a touch on the weak side, but close to expectations. Consolidated EBITDA of $146MM (-7.6% yr/yr) were lower than the $152MM expected. MTS' 2010 guidance was below RBC CM’s expectations, as a result the firm revised down its EBITDA, EPS, free cash flow forecasts. Based on RBC CM’s EBITDA forecasts, ongoing pension funding, and higher capex spending for Allstream Wireless and the Manitoba HSPA network, the company is expected to generate negative FCF until 2013E, including -$55MM in 2010E and -$33MM in 2011E. RBC CM believes, MTS could continue supporting the dividend and >100% payout ratio for the next few years if the board so chooses. A dividend cut would therefore be at the company's discretion.