Quebecor Earnings Top Estimates on Wireless Subscriber Gains

Quebecor Inc. (QBR/B), the Canadian provider of telecommunications services under the Videotron brand, reported fourth-quarter earnings that topped estimates, helped by gains in mobile-phone subscribers.

Adjusted profit, leaving out discontinued operations, were 55 Canadian cents (50 cents) a share in the period, compared with 42 Canadian cents a year earlier, according to a statement today. The results beat the average analyst estimate of 52 cents, according to data compiled by Bloomberg. Revenue rose 0.5 percent to C$1.12 billion, compared with the C$1.15 billion projected by analysts.

Described by Canada’s industry minister as having the potential to be the country’s fourth national wireless carrier, Quebecor took advantage of a lack of competition in a 700-megahertz spectrum auction last month to buy access to radio waves in British Columbia, Alberta and Ontario. Now it’s debating whether to use the airwaves to expand outside its home province of Quebec.

“We are obviously well aware that some have tried to compete in the past in the Canadian wireless business and have struggled,” Chief Executive Officer Robert Depatie said during a conference call with analysts. Quebecor doesn’t plan to make the same mistakes, he said.

The company added 25,300 new mobile-phone subscribers in the fourth quarter, compared with the 21,000 average estimate of three analysts surveyed by Bloomberg. Sales in the company’s telecommunications unit gained 3.7 percent to C$693.2 million, while broadcasting fell 4.6 percent to C$123.7 million and News Media slipped 8.2 percent to C$204.5 million.

Underestimated Value

“The market is currently underestimating the value of the wireless business, which we expect will begin to contribute significant growth to the company’s profits over the coming year,” Phillip Huang, a Toronto-based analyst with Barclays Plc, said in a note to clients. He has the equivalent of a buy rating on the stock.

The company’s purchase of airwaves positioned it to expand beyond its home of Quebec and compete nationally with BCE Inc. (BCE), Telus Corp. and Rogers Communications Inc., which together serve 90 percent of the country’s wireless subscribers.

“While no decision has yet been made on how to use the spectrum, various options for maximizing the value of our investment are now available to us,” Depatie said in the statement.

‘Not Convinced’

Adam Shine, a Montreal-based analyst with National Bank Financial Inc., said in a March 11 note to clients he didn’t think Quebecor would enlarge its territory anytime soon.

“We’re not convinced of the strategic rationale behind any possible national expansion,” Shine wrote. He downgraded the stock to the equivalent of a neutral rating from a buy.

Net income in the fourth quarter was C$43.4 million, or 29 cents a share, compared with C$7.1 million, or 5 cents, a year earlier.

Quebecor fell less than 1 percent to C$24.79 at the close in New York. The shares have fallen 6.2 percent this year.

Quebecor’s vice chairman, Pierre-Karl Peladeau, resigned March 9 to run in next month’s Quebec provincial election for the Parti Quebecois, which advocates separating from Canada. Peladeau, 52, spent 14 years as the company’s CEO before giving up the post last year.

Some Facebook users wrote on the company’s page that they would end their Quebecor subscriptions because of Peladeau’s move. The company has not seen an increase in service cancellations since Peladeau’s announcement, Manon Brouillette, president of the Videotron unit, said during the conference call.

Quebecor moved to fill Peladeau’s vacated board spots by appointing Depatie to the boards of the company’s three main units. Francoise Bertrand, a former chairman of Canada’s telecommunications regulator, and Brian Mulroney, the nation’s prime minister from 1984 to 1993, were appointed as chairman and vice chairman of the news media unit’s board.

(A recording of Quebecor’s conference call can be accessed on the Internet here.)

To contact the reporter on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Anne Reifenberg, John Lear

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