Q2 telecom earnings could be sign of recovery: Analysis

The telecom sector is on track to rebound following a bleak 2019 and 2020, according to an analysis of the industry halfway through the 2021 financial year. “Halfway through the year, we see the telecom sector being well on track with the trajectory alluded to in our 2021 Telecom Playbook report published early January,” wrote Canaccord Genuity in a Tuesday publication. In the report, Canaccord Genuity projected a rebound in the sector led by a recovery in wireless and sustained strength in wireline. In its view, the recovery in wireless was based on the expectation that “the regulatory picture was improving markedly from what it was previously” and “competitive intensity was normalizing.” It pointed to the proposed Rogers-Shaw merger supporting its thesis of "competitive moderation” in wireless for an extended period of time, and the impact of the CRTC’s decision to set permanent rates for third-party aggregated wholesale access to the level of interim rates established in 2016. Due to these developments, “but mostly due to easing rates,” following a slow start in the first quarter, the telecom sector produced 11 per cent total returns in the second quarter, according to the analysis. “However, on a year-to-date basis, the sector is still just on par with the S&P/TSX and has under-performed other yield-oriented sectors such as banks, pipeline and REITs materially,” the report stated, adding that this demonstrates there can be more upside to the sector in the second half of the year, “as the market more fully grasps and buys into the significance of the improved regulatory picture and the sustainability of the competitive easing.” With pandemic restrictions slowly lifting, a “steeper climb” is also expected for telecom companies’ financial performances as international roaming resumes and overages are starting to increase. According to the report, the trajectory of recovery will vary by company, with Telus Corp. perhaps getting close to pre-pandemic level wireless service revenues by the end of its second quarter in 2021, for which it has yet to release results. Meanwhile, the report said Rogers Communications Inc. may be two to three quarters out. “While investors may reward names like Telus early on, it also suggests steeper growth trends and perhaps upward earnings revisions for Rogers through H2 2021,” the report reads. Although Telus and Rogers are Canaccord Genuity’s “picks,” it is “warming up” to BCE Inc. because of its strong residential performance. “We are holding back until we get a bit more clarity on the direction of interest rates, with the stock having noticeably benefited from a recent pullback in rates,” it wrote about Bell. Telus is expected to lead the sector because of its wireless results, resilience through the pandemic, and growing mix of high-growth assets. “On the other hand, we see Rogers as the pandemic rebound pick given its high sensitivity to the lockdown conditions,” the report reads. The three big incumbents are estimated to, on average, see service revenues as of Q2 remaining four per cent below pre-pandemic levels, “but this is heavily skewed by Rogers, which is impacted by a heavier mix of roaming, a more pronounced transition to unlimited (thus steeper overage declines), greater sensitivity to immigration, etc.,” the report notes.

Q2 telecom earnings could be sign of recovery: Analysis

Brief | July 13, 2021

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Q2 telecom earnings could be sign of recovery: Analysis

Brief | July 13, 2021

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