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[ music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether there may be better days ahead for the Canadian telecom stocks. TD Cowen's Vince Valentini joins us.
MoneyTalk's Anthony Okolie is going to have a look at a new report on the health of the Canadian automotive sector.
And in today's education segment, Ryan Massad is going to shows how you can customize your experience while placing a trade on Advanced Dashboard.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets. First trading day of the week. Not a lot going on. We will start with the TSX Composite Index.
Modestly in negative territory, nothing too dramatic. You are down about 20 points or 1/10 of a percent.
Among some notable movers today includes blackberry. Didn't see any new specific to the name but we will tell you a bit more later about the meme stocks that have been getting a bit today.
Blackberry has gotten caught up with that a few times. It's getting a modest bid today. It's up about 7% or $0.29.
Canine to mining, we don't talk a lot about that name of the show, earnings reaction is a bit negative, at $7.67 per share, it's down about 4%.
South of the border, we've been on a fairly decent run for the equity markets, earnings season looks pretty good on Wall Street.
But come this one, we get another read on US inflation, perhaps a little caution ahead of that. The S&P 500 basically flat, up one point. The NASDAQ showing a little bit more strength, up one quarter of a percent to the tech heavy index, 1/5 of a percent.
Here it is, that meme stock back in the spotlight today, let's check in on game stock. We will give you the details later in the show as to why people are back into the space, but a 60% pop right now it $28.23 for GameStop. And that's your market update.
The Canadian telecom sector has been under pressure recently, our future Guest today says there may be some potential green shoots for the space.
Joining us now to discuss is Vince Valentini, managing director for equity research at TD Cowen. Good to have you back.
>> Good to be here again.
>> Telecom stocks, I used the heat map today on Advanced Dashboard to pull up the performance so far and there is BCE, Telus, Rogers, Quebecor. They are all feeling some downward pressure. What's going on?
>> Yeah, most of 20% or more from their highs last year. It's been an almost perfect storm. I looked back at when I was here last time and realize that things basically got a lot worse a couple weeks after that. That was mid February.
First of all, we have seen bond yields go even higher. As we talked about last time I was here, we need bond yields to see going down to bring back macro interest in the space. These are not gross names. They are steady cash flow names with good dividends. So people, when they don't have alternatives and risk-free bonds, they tend to look at these names and they get a better bid and better valuation. Bond yields are up about 15 basis points since then so that doesn't create a good situation for them. And then probably more important than that is competition in the industry has gotten even worse.
I would say we've had basically hire for longer in terms of rates, lower for longer in terms of pricing for telecom services, especially wireless. In the month of March, things basically went off the rails. We saw price wars across the industry, across most of the country, especially in the province of Québec, effectively, Rogers, Bell and Telus all saying we are not going to let Quebecor and their new freedom mobile business just take our market share.
Quebecor Pricing very low for a long time.
Typically, what we see is Black Friday pricing a pretty aggressive and that will last till the end of the year, boxing week, and then first of January, we will see price increases, giving an opportunity to dip back down again during promotional periods in subsequent months.
Since November, Quebecor and freedom have not change their pricing. We are in the middle of May and they still have their Black Friday pricing on the market. That is the hearts of the issue. People think Rogers, Bell and Telus are going to have to sustain lower pricing in their wireless business in order to fend off this competition from Quebecor. That combined with the bond yield has the stocks trading at pretty low valuations but there is certainly justification for it.
>> Going forward, the market is anticipating some rate cuts from the Fed later this year.
Let's start with the interest rate environment. If we do end up in a situation where by the end of the year, the Fed feels he can start cutting it's trendsetting rate, would we see some relief in these names?
>> I think for sure. Go back to November and December when bond yields were coming down. Destocked, at that time, they were so nervous about pricing in the industry, they were in the midst of that Black Friday pricing going on for all the carriers, but it's almost like the market ignored the bad news on the industry fundamentals because bond yields were coming down and most of the stocks had a pretty good run over that last six weeks to an last year. So I think the same thing will happen again.
The bad news gets overwhelmed by the macro news on bond yields.
Let's face it. You're looking at 7% dividend yield on Telus, 8 1/2% on BCE.
Even if there is a bit of hair on these names in terms of competition, people are going to find that pretty attractive in an environment where interest rates and bond yields are coming down.
>> For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the website at the end of this program.
So that's the interest rate environment.
Let's talk about the competitive environment. Obviously, the players are going to say, you comprise whatever you want, we will not step back and let you take market share. Could we see an easing of that competitive space this year?
>> I hope so but it doesn't seem like it's going to happen right away. We just came through earnings season and we had conference calls with all the major operators, Telus and Quebecor were the last report on Thursday last week.
Quebecor was asked multiple times about their aggressive pricing strategy. Their numbers in some places were not great.
They are seeing a significant reduction in their average revenue per unit in the wireless base due to their low pricing.
People were asking, are you going to let up or ease on your pricing?
There signal was basically no, we are here to gain market share, we are the disrupter and the message saying they are giving is a bit scary for some people.
I expect it will ease at some point.
We always see the pendulum swing back to the middle at some point in this industry.
We have seen people fearful that a price war would last forever, rarely does it.
Cooler heads will probably prevail. I should point out that we did see the three incumbents, Bell, Telus and Rogers have changed their prices, they are now doing $39 for 20 gigs of data.
There has been a bit of a green shoot from them.
But Quebecor and freedom have not followed that path higher which they were hoping to see by now but it's not happening just yet. I think we probably have to figure out how to value the stocks and what upside there could be even if pricing, I don't think it's a lot worse but we have to assume it does get better.
>> Now we hear from some of these names at the regulatory environment is not favourable for their operations. Let's break that down in terms of how do you see it in terms of the regulatory environment and you think there is relief coming from the CRTC?
>> When I think regulatory, I think broader picture to start with is government efforts on population growth and housing growth sides.
There, there could be some impact for sure if this government or any future government wants to put further restrictions on foreign students or permanent immigration. That has been a very nice tailwind for the wireless industry due to record levels of subscriber growth in 2022 and 2023. If there is a more substantial reduction in population I would consider that the biggest revelatory or government risk that we face. In terms of the specific regulatory, the CRTC, really nothing, nor should there be. The competition in the market is taking care of all the problems.
Every time CPI stats come out, a big outlier versus increases in the price of most codes for consumers, the big outlier is wireless down 15 to 20% year-over-year, Internet prices not down as much is that but they are still down in the single digits. If I'm the CRTC or politician, I'm probably saying, look, I'm not going to congratulate the telecom industry, that would not win me any votes, but do I want to focus on this? There's a lot of other fish they need to fry. The telecom's are saying the things we have done in the past decade to create more competition seemed to be working on their own and we don't need more regulation. So I'm not worried at all about incremental CRTC decisions.
We are just keeping our eye on population growth.
>> You put all this together for the telecom space, obviously, some investors may feel frustrated and wonder what's going on. Longer-term, what should they be thinking?
>> I think you want to focus on the names that have the ability to generate good cash flow even if we are in a lower for longer scenario in terms of pricing.
And there are a couple of names that can deliver that, and then sustain good dividend growth.
So that's what I would encourage people to do, to keep their eye on the fundamentals of cost-reduction and capex reduction which are sometimes overlooked facets of this industry. Everybody's been so fixated on subscriber growth and revenue growth for years that it overlooks the fact that there is a very positive underlying trend going on whether it's generative AI, new network technologies, self installation at your home. Across the board, there are substantial cost reductions going on which means a lot of these companies can still generate mid-single digit, even high single-digit cash flow growth even if the revenue growth is almost 0, so I would leave it there for now.
There are certainly some names that are better set up for that than others.
>> Fascinating stuff and a great start to the show. TD Cowen covers BCE, Telus, Rogers and Quebecor.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the website at the end of this video.
We are going to get your questions about telecom and video stocks were Vince Valentini and just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
The stock at the centre of the pandemic era meme stock crazes on the move today.
We showed you shares of GameStop earlier the show, they are up 70% at this hour, this is after Roaring Kitty, that's an online handle, this person is credited with inspiring the short squeeze of 2021.
Apparently they are back. They posted on social media for the first time in about three years, seems to be what's behind us.
Other meme stocks including AMC Entertainment also seeing some gains today in the wake of all this. We will keep our eyes on that one for you.
BHP Group says it has a sweetened offer for rival minor AngloAmerican, but it is still being rebuffed.
AngloAmerican had already rejected a $39 billion all share takeover proposal from PHP last month. Today, BHP says it revise the offer valued now at $43 billion but that has also been rejected.
Shares of Squarespace are getting a boost today. The website platform is being taken private in a nearly $7 billion US deal.
Private equity firm Permira will pay $44 per share for the New York City-based company.
That stock is up 13%. Quick check in on the markets. We will start here in Toronto with the TSX Composite Index. Modest downside for us today to start the trading week.
About 1/10 of a percent. South of the border, we've had a nice run in equities, we've had a strong earnings season. The next test for the market will be this Wednesday with another print on US inflation. Right now the S&P 500, it's basically flat, up two points were for ticks.
Okay, we are back with Vince Valentini, we are taking your questions about telecom and media stocks.
What's your view on Bell?
>> Bell is still a bit of a sore spot for me. It is-- they have the ability to lower costs over time and they have the ability to bring their capital expenditures down, but they still have a lot of spending to do on their fibre network. They are about the records of the way done by getting the last 25% of their homes upgraded from legacy copper fibers probably going to take them another four years. They have actually started slowing down the project a little bit as a result of some of their cash flow concerns. I think that creates a situation where we have a long period of time where their dividend is going to be well in excess of the free cash flow they are generating.
The ratio this year is almost 175%.
There is some elevated restructuring and severance costs, some issues in terms of taxes and working capital, but even when things normalize a little bit, they are still in the range of 120% by our math looking into next year, so there are other names, tell us that reported last week for example, in a much better situation in terms of their dividend payout ratio, much closer to the inflection point on five or be complete so they can lower their cap ex starting now and they have the opportunity to lower their operating cost structure.
About making things appear. We see it in numbers. Bell has slowed their dividend growth from 5% down to 3%. Telus just stayed at the same pace of 7% as of last Thursday. You are getting much lower dividend growth which would be compensated for by the extra yields are getting. If you think the whole sector is going to do better and you think bond yields as you were talking about will come down, BC would be a little higher but I think other names will do better.
>> We have a viewer right now listening to the conversation about BCE. You mentioned that the dividend growth has been slowing, the yield is quite high. They are asking, do you think Bell could cut the dividend this year?
>> They are absolutely against cutting the dividend in the near term.
They are going to do whatever they can to not cut it.
I therefore would say the odds are pretty low of a cut because when you look at the alternatives, they could sell some assets to help pay for the dividend, they could institute a drip discount program to pay for some of the dividend in shares as opposed to cash. So if they don't want to cut it, it's probably not going to get cut anytime soon.
Your questionnaire was savvy to say next year versus this year because that does then begged the question, what if the industry fundamentals get even worse?
What if the pricing challenges we are seeing across the board that don't just impact Bell, they impact all of the carriers and Bell is not immune, it that continues and gets worse, I could never say never, there is a point at which the dividend is just not sustainable and it could have to be cut but more realistic is just that the growth could slow even further. You are getting a token 1% dividend growth per year which may be enough for some people but I think they're better options out there.
>> That was BCE. Let's take another audience question.
Can we get your guests take on RCI, Rogers?
>> So Rogers obviously has nothing to do with the dividend story that BCE and Telus are because they have not raised their dividend for years and people generally don't go in for the yield. Rogers has a totally different set of challenges which is they took on a set of that last year to buy Shaw. They knew they were going to be able to pay that debt down through free cash flow generation and all the synergies on that deal.
Plus, a bunch of non-core assets that they experience sold. I think Rogers is in great shape.
They have already achieved the full run rate from the synergies that they identified at the time of the Shaw deal.
They have not done as well as I would like on the asset sales yet but I think were could be coming over the next few months, selling some non-core real estate in a couple of non-core businesses. They've identified $1 billion that they would like to raise to pay down some of their debt even faster. So put that all together and their debt which was over five times leverage at the time of the Shaw deal closing last April will be down to buy our numbers 4.4 times by the end of this year and then under four times at some point during 2025 which is effectively the same level that BCE and Telus are at. Once Rogers can get there leverage under control, I think their shares could do well. I would throw in one of the wrinkle though. Their wireless business has been best in class, their operator is fantastic, their scrubbers are well above Bell and Telus. Unfortunately, their cable business has been struggling a little bit to get some of the immigration benefits and some of the revenue synergies they would like to have found. They are at minus revenue growth and cost cutting is offsetting that for now but some investors are concerned that cost-cutting will end at some point, the synergies will fully play out and they need to get back to positive revenue growth which the management team is very confident they can do by the end of this year but I think the investment community is a little unsure so that is one of the reasons the stock is underperformed a little bit recently. I think it's a manageable item and I have confidence that management will turn things around in the next two or three quarters. As you talk with those asset sales of non-core parts trying to pay down the debt.
Given the performance of some of their rivals, who is a buyer in this environment for some of those assets?
>> Non-core means not a telecom asset.
They have a bunch of excess real estate that they have amassed over the years so that's the bulk of the non-core assets they are looking to sell. Another challenge is if it was an office building, there is not much demands of their having to rezone some of their properties to either industrial or residential use.
They've been working at this for almost 2 years now so I think they are getting close to the finish line. They also have a data centre business which is non-core with GS may be on the periphery of telecom but it's obviously a different sort of category and there's a ton of demand for data centre capacity in the right areas across Canada and the US, especially with generative AI demands that has been created in data centres. It's not like they are looking to sell wireless or cable businesses. That would be challenging to find a buyer, maybe even more challenging to get regulators to approve anything.
>> Interesting stuff. TD Cowen covers BCE, Telus and Rogers. For more information, and a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of this video.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Vince Valentini on telecom and media stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
In today's education segment, we are having a look at TD's Advanced Dashboard, plat form designed for active traders available through TD Direct Investing.
Ryan Massad, senior client instructor with TD Direct Investing joins us now. You're going to show us how we can customize our experiences and placing a trade in Advanced Dashboard.
>> Definitely. One of the great things about Advanced Dashboard is customization.
From watch lists to everything else on the platform. But we are going to focus today on order entry, you can customize that.
Let's jump into Advanced Dashboard and check that out right now.
So I've got a nice little set up with one of the easiest ways to place a trade here is going to be off of your watchlist, whether click on a bid were asked, it's going to open up a floating trade ticket here and the nice thing here is compared to other platforms, if you click on yet another ask or bid, it will open up another order entry ticket, so it just allows you to have a couple open at a time, maybe waiting for a particular announcement or piece of news in order to send over an order. Off of the watchlist, there is another way. On the left side of the watchlist, there are these three dots.
If you click on them, you get a bit more of an extensive type of list of how to place a trade in addition to the buy and sell.
Now, in addition to that floating ticket, if you really find that you want in order to get to sit on screen or most of your trading, you can actually create that yourself. If you click on the trading from the top here, you can add an order entry component or what I have here is a quote detail component because in that quote detail component, I've got a number of things, including order entry. And what makes this nice is you can link your watchlist using this channel configuration, send anything that you got on here over to this item here and we receive and that way, every time that you click on something here on your watchlist, you are able to see it populate in this order entry ticket that will stay on screen the whole time.
That is just with the order entry ticket.
Maybe you are a technical trader and you like to use her charts a lot. Trying to trade off the charts is completely something you can do you on Advanced Dashboard.
On Advanced Dashboard, I've got my chart, I've got this red cell button, I've got this green buy button and I can click on those and open up in order to get it right off of the chart. If I want to see more chart or quote information, I can go into the top right corner of the chart, click on this little gear and then I can's howl Advanced Dashboard what I want to see on the chart and this dashboard can actually show me a couple of things so that I don't have to go off into another screen, so I can see bids and asks on the chart, I can see the high and low if I wanted to as well and that way he gives me a better idea of what things are happening on the chart.
So quite a few ways that you can customize and place trades on Advanced Dashboard when it comes to making it as efficient as possible.
>> All right, Ryan, we are talking about customization. Is there a way to customize those values that populate the order entry ticket?
>> Definitely! That's another thing you can do so let's jump back into Advanced Dashboard and check that out.
On the top right corner, you will always be able to hit this little wrench here and go into the settings.
Under the orders, right here is where you can really hone in on the exact items that you use all the time when you're placing your trades. What default order quantity do you want to pop up every time you open up in order to?
You can always change that after the fact, but just to have something that is there consistently.
Do you want to market order, a limit order that you have all the time? What kind of duration do you want to always appear on your orders? Is it a day order, good till date, good till cancel? I encourage you to go into the screen where you can customize your own trade ticket. It's going to make yourself a more efficient trader and really take advantage of the customization features of Advanced Dashboard.
>> Great stuff as always. Thanks for that.
>> I appreciate it. Thank you.
>> Our thanks Ryan Massad, senior client instructor with TD Direct Investing. For more educational resources you can check at the educational centre on my broker or use this QR code that will navigate to TD Direct Investing's YouTube page where you will find more informative videos.
We are back with Vince Valentini, taking your questions about telecom and media stocks. This one just coming in in the past couple of moments. Can you guess please give us his view towards Corus Entertainment?
>> Happy to give my view.
Specifically Corus, it's a challenging time for them. They've given guidance that their advertising revenue is going to continue dropping by double digits, 10 to 15%. Coming off of enemy distortions and then the Hollywood strikes of last year, they are struggling to get back their mojo. Sports advertising seems to gotten some audiences and advertising revenue back. Digital media is getting a lot of ad revenue back with those traditional entertainment channels that Corus is known for, I think it's taking longer than people expected. From a stock perspective, that creates a situation where over 95% of the enterprise value of the company is now in debt as opposed to equity, so the equity has become speculative in my view.
If people are bullish on recovery in the advertising market which means you probably have to be bullish on consumer spending and overall economy which is maybe difficult these days to be bullish on, but if one is, you probably want, a safer bet is to be owning their debt in publicly traded bonds which are trading at a very high yield as opposed to the equity at this point.
So call that one bit of a speculative name that is going through some challenges.
Just a quick word on, that doesn't mean that the entire ecosystem of advertising and media is weak. We do have digital media names in this country. They are not all US-based. There is one called VerticalScope that we cover. It's actually a performing stock in our investment universe. Your today, the stock has more than doubled since the beginning of January. They are seeing tremendous resurgence in audiences and advertising on their community sites.
Many people would be familiar with Reddit.
VerticalScope is basically the same thing in terms of online community forms in niche product areas. This other advertising revenue, total ad revenue, bounced back to positive 14% in the first quarter versus -6% in the fourth quarter of last year and the guidance management just give a couple of weeks ago was that that will be even higher growth in the second quarter. So there are other media names out there with better underlying growth trends than Corus.
>> That's an interesting name for viewers to do homework on.
We had another question common. With all the substantial challenges, what is a possible future for Corus?
Is it being taken out by another company?
Is it starting to get worried about as a going concern?
>> We actually just got a CRTC decision this morning that will be a little bit beneficial to courts, and that steers you down the path of the answers that question which is there probably has to be some sort of regulatory reform to either significantly change the cost structure for legacy broadcasters Lycoris or allowing more consolidation which the Canadian government ends CRTC still have pretty strict rules about who is allowed to own how many TV stations and radio stations.
So one of those two paths are both ultimately I think is the outcome if this company is going to continue as a going concern, they are going to need the CRTC to lower their Canadian programming expenditure which was part of the decision they got this morning from the CRTC and ultimately the government is going to say if we want strong, vibrant broadcasters to share Canadian voices and put Canadian news on, they are going to have to allow a bigger stable company sold assets and there are obviously other players in the area like Rogers and Bell with better balance sheets etc. than Corus.
Consolidation could be the future.
>> Interesting stuff there on Corus Entertainment.
Another audience question. Someone wants to get your take on Quebecor.
>> Quebecor, as we talked about earlier, is the disruptor player in the wireless industry and the transformative deal for them last year was acquiring freedom mobile so they now have an international presence as opposed to just being a powerhouse in Québec which they had been for 20 years in the cable business.
They have started to labour in Internet services and TV services to bundle with wireless freedom business recently. They also just launched their all digital… Called for his mobile which had been in Québec for years and now just launched in Ontario, Alberta and British Columbia.
The company is very exciting.
Lots of growth. They are disruptive player trying to nibble at the heels of the Big Three and Cummins, Rogers, Bell and Telus.
Some investors are pretty excited about that. As the disruptor, they may have better economics and a lower cost structure and also a lower starting point on market share to be able to take Sharon I certainly see those benefits. I would be lying if I didn't say that recently I have been disappointed with their pricing. They are getting the volume growth in subscribers and wireless but it's being almost entirely offset by reduced pricing.
Average revenue per user, keeping that Black Friday pricing throughout the year into May. There wireless service revenue growth is not where I would like it to be.
We are constructible the name we will call it but I think they could be doing better and we would rather see some stabilization and pricing to place them high on our pecking order.
>> Interesting stuff on Quebecor. Someone wants to get your Outlook for Cogeco.
>> Cogeco has no exposure to the wireless business in Canada.
They aren't being affected by the disruption that the other players are facing. Half of their business is in the US cable market versus the Canadian cable market and US cable has been under significant seed for almost 2 years now from new players building Firebird to compete with traditional cable networks and a lot of fixed wireless competition from Verizon and team mobile. These are types of competition we don't really have in Canada, so the Canadian cable market has been more stable. In the US business, they have been losing subscribers. The revenue has been under a bit of pressure and that has been partially offset by pretty good results in their Canadian cable business. So we need to see is Cogeco make some actions with their assets that we give people more confidence.
The share price is trading at an almost all time low in terms of valuation. It's around five times. So clearly people are looking for better news from them and a lot of that is priced in. So what we need to see is better shareholder actions.
They do have a new CEO who just started recently and he's just sort of gone around in the investment community. He sounds like he is a very good plan. He has the supportive the controlling shareholder which is the O'Dea family. He has the support of his board to go out and do some shareholder friendly initiatives. They been talking about potentially pruning the US asset base. There is still a pretty vibrant private market for cable assets in the US whether it's under table operators are private equity players so potentially Cogeco could sell some other US cable systems and repatriate that money to buy back shares or reinvest in Canada.
They also have identified that they want to try to do some sort of partnership with wireless in Canada which would fill a gap in their product portfolio. They are up against bigger players like Bell who can offer wireless plus Internet. Cogeco being able to do that would be great as long as they don't have to spend a ton of money on capex to build their own network.
This new CEO sounds like you got a plan.
I have a Xiaomi attitude to see if he can deliver on the plan but the starting point is they have identified what they need to do and I am reasonably confident that especially with the valuation where the shares are that all the bad news is priced in and there is upside potential if this new CEO can deliver.
>> Interesting stuff on Cogeco.
TD Cowen covers couriers, VerticalScope, Quebecor and Cogeco.
And for more information, a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
We will get back your questions for Vince Valentini on telecom and media stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
The long-awaited recovery in the Canadian auto industry is well underway after robust sales in 2023 and inventory levels are touching a three year high to start the year. Anthony Okolie has been digging into a TD economics report on all this, the road back to normality for the Canadian auto sector.
>> Vehicle sales in the first quarter of this year have gotten off to a strong start. Sales were up 9% year-over-year led by a 17% jump in core volumes well light trucks which accounted for about 80% of light vehicles were up a modest 7.6% year-over-year.
Auto demand has been surprisingly resilient despite the fact that we have seen some economic challenges facing Canadians. Sales growth in 2023 was actually roughly in line with that of the United States despite the fact that the Canadian economy grew at half the rate of the US last year. Pent up demand and supply constraints were a key factor, build up of pandemic savings. Population growth in Canada was also a big boost to sales. I will get to that later in the show.
TD economics has had the for 2024, Canadian car sales, they are estimating them to come in at 9.6% growth this year to 1.9 million units with sales reaching pre-pandemic levels next year as the economy recovers and lower rates… They see North American audit reduction of 3% as automakers continue to adjust to the post-pandemic market. In contrast here in Canada, they expect production to fall.
That is really due to some temporary shutdowns of the Stellantis, Brampton and Ford, Oakville plan submitted upgrades to the EV and hybrid vehicle production.
Meanwhile, the Canadian labour market continues to be moderately supportive of auto demand.
While we have seen labourers supply growth outpacing labour demand growth as the chart shows in 2019, full-time job growth was actually above that seen in 2019, pre-pandemic. This has contributed to the resilience and real income growth and has lifted household disposable income. When it comes to housing costs, we are seeing some headwinds there. Roughly 2/3 of Canadian households have either seen their housing costs rise or expect them to rise at some point in the future. On aggregate, this remains a headwind to consumption and by extension auto sales. However, Canadian vehicle sales continue to grow despite these headwinds and TD economics points to two key factors. One, delayed post-pandemic recovery and consumers, again, expected to push sales higher moving forward with moderating vehicle prices, as the chart shows, we have seen prices slowing, as well as lower financing costs. Those are providing some support to growth in auto sales in the second half of the year.
Now, the second factor, of course, is a push vehicle sales is population growth as people going to work primarily rely on vehicles.
TD Economics expects vehicle sales in Canada that will grow roughly 10% or 1.9 million units as the chart shows before slowing to 4.2% in 2025. While healthy inventory levels and lower financing costs continue to provide some tailwinds and improving affordability into the new year.
>> Past any forecast. What's the risk?
>> TD Economics points out the main risk is that population growth may have a stronger feedthrough effect than expected.
While at the same time, moderating economic growth and the potential for persistent portability challenges could weigh on sales as well.
>> Interesting stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets. We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Look at the heat map, starting the TSX 60.
You want a little bit of a bid into some of the financial names.
Sun Life pulled back last week on his earnings and is regaining some ground.
It's a bit of a lacklustre day.
Across the border, pretty good earnings season on Wall Street. Signs the labour market might be cooling. Big test coming this week, that's Wednesday mornings inflation print out of the states. As we look across the border right now, a bit of a mixed bag in the technology space Google or Meta showing downward pressure but a bit of a bid into Intel and were modest for Nvidia. Tesla and Ford, two different kinds of automakers although Ford makes EVs as well, getting a bit of a bid today.
We are back with Vince Valentini from TD Cowen, take your questions about the telecoms and media stocks. Someone is asking, streamers are increasingly bidding for sports broadcast rights. How could this impact the Canadian telecoms?
>> This is a very interesting topic because we just recently saw Amazon prime bid for some of the rights so they are going to be showing all of the Monday night NHL game starting in the next season, the 2024, 2025 season. Those rates have been prepurchase by Rogers for a period of 12 years so effectively Rogers is subletting some of their rights to his streamer with the support of the NHL as well. So I think that tells you that this is a trend that's coming. We have seen that in the US already. Apple shows baseball games, prime has lots of football games, almost everybody has dipped their toe in, even Netflix has bought some sports rights through WWE. So I think we'll probably just see more and more fat so the topical thing in Canada is that massive NHL contract comes up for renewal in 2026 and obviously hockey is the most talked about content in Canada.
It would be very interesting to see how that gets split up. We'll all go to Rogers again? Is it going to be split between the traditional broadcasters of TSN and Sportsnet? Effectively, Rogers and Bell.
Or are we going to see a chunk of those rights go to streamer players like prime?
I expect it will be the latter direction, and a more even split over time which is not a bad thing. If half of the hockey games are on Sportsnet, you're probably subscribing still if your sports fan and if the other half the games are split up between other broadcasters and streamers, you don't necessarily lose your core subscriber but you do lay off some of the costs which are very expensive rights for any sports these days.
>> Interesting stuff. We are out of time for questions. Before I let you go, we started the show talking about some of the tough returns we have seen, the pullback we have seen in telecom stocks. What do investors need to think about for the year ahead?
>> I'm glad you brought it back to this. I don't want to be too negative here. The key to investing is partially looking at what's already priced into the stocks. The stocks are priced can a lot of bad news.
Telus used to be traded over 10 times, now at 7 1/2. Rogers used to be 8 1/2 and now it's at 6 1/2.
These companies did not change their guidance for the year. They are still trending towards what they thought they could do when they give their guidance in January and February. Telus as I mentioned earlier still has a dividend at about 7% per year.
If you look at timing, bad news is already priced in, eight you don't necessarily need a massive improvement in the pricing environment that we are seeing in wireless and cable business, all you need is stability and then cost-cutting and these companies could still be around for many years generating good cash flow and good dividend growth. There is definitely some opportunities out there and on these valuations I'm pretty instructive. As always great to get your insights.
Appreciate you dropping by.
>> Thanks.
>> Vince Valentini, Managing Director for equity research at TD Cowen.
As always, make sure you do your own research before making any investment decisions.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the website at the end of this program.
Stay tuned for tomorrow show. Jing Roy, VP, Dir. and portfolio manager for asset management at TD asset allocation will be our guest in your questions about asset allocation. He can get a head start with those questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have the show today. Thanks for watching. We will see you tomorrow.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether there may be better days ahead for the Canadian telecom stocks. TD Cowen's Vince Valentini joins us.
MoneyTalk's Anthony Okolie is going to have a look at a new report on the health of the Canadian automotive sector.
And in today's education segment, Ryan Massad is going to shows how you can customize your experience while placing a trade on Advanced Dashboard.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets. First trading day of the week. Not a lot going on. We will start with the TSX Composite Index.
Modestly in negative territory, nothing too dramatic. You are down about 20 points or 1/10 of a percent.
Among some notable movers today includes blackberry. Didn't see any new specific to the name but we will tell you a bit more later about the meme stocks that have been getting a bit today.
Blackberry has gotten caught up with that a few times. It's getting a modest bid today. It's up about 7% or $0.29.
Canine to mining, we don't talk a lot about that name of the show, earnings reaction is a bit negative, at $7.67 per share, it's down about 4%.
South of the border, we've been on a fairly decent run for the equity markets, earnings season looks pretty good on Wall Street.
But come this one, we get another read on US inflation, perhaps a little caution ahead of that. The S&P 500 basically flat, up one point. The NASDAQ showing a little bit more strength, up one quarter of a percent to the tech heavy index, 1/5 of a percent.
Here it is, that meme stock back in the spotlight today, let's check in on game stock. We will give you the details later in the show as to why people are back into the space, but a 60% pop right now it $28.23 for GameStop. And that's your market update.
The Canadian telecom sector has been under pressure recently, our future Guest today says there may be some potential green shoots for the space.
Joining us now to discuss is Vince Valentini, managing director for equity research at TD Cowen. Good to have you back.
>> Good to be here again.
>> Telecom stocks, I used the heat map today on Advanced Dashboard to pull up the performance so far and there is BCE, Telus, Rogers, Quebecor. They are all feeling some downward pressure. What's going on?
>> Yeah, most of 20% or more from their highs last year. It's been an almost perfect storm. I looked back at when I was here last time and realize that things basically got a lot worse a couple weeks after that. That was mid February.
First of all, we have seen bond yields go even higher. As we talked about last time I was here, we need bond yields to see going down to bring back macro interest in the space. These are not gross names. They are steady cash flow names with good dividends. So people, when they don't have alternatives and risk-free bonds, they tend to look at these names and they get a better bid and better valuation. Bond yields are up about 15 basis points since then so that doesn't create a good situation for them. And then probably more important than that is competition in the industry has gotten even worse.
I would say we've had basically hire for longer in terms of rates, lower for longer in terms of pricing for telecom services, especially wireless. In the month of March, things basically went off the rails. We saw price wars across the industry, across most of the country, especially in the province of Québec, effectively, Rogers, Bell and Telus all saying we are not going to let Quebecor and their new freedom mobile business just take our market share.
Quebecor Pricing very low for a long time.
Typically, what we see is Black Friday pricing a pretty aggressive and that will last till the end of the year, boxing week, and then first of January, we will see price increases, giving an opportunity to dip back down again during promotional periods in subsequent months.
Since November, Quebecor and freedom have not change their pricing. We are in the middle of May and they still have their Black Friday pricing on the market. That is the hearts of the issue. People think Rogers, Bell and Telus are going to have to sustain lower pricing in their wireless business in order to fend off this competition from Quebecor. That combined with the bond yield has the stocks trading at pretty low valuations but there is certainly justification for it.
>> Going forward, the market is anticipating some rate cuts from the Fed later this year.
Let's start with the interest rate environment. If we do end up in a situation where by the end of the year, the Fed feels he can start cutting it's trendsetting rate, would we see some relief in these names?
>> I think for sure. Go back to November and December when bond yields were coming down. Destocked, at that time, they were so nervous about pricing in the industry, they were in the midst of that Black Friday pricing going on for all the carriers, but it's almost like the market ignored the bad news on the industry fundamentals because bond yields were coming down and most of the stocks had a pretty good run over that last six weeks to an last year. So I think the same thing will happen again.
The bad news gets overwhelmed by the macro news on bond yields.
Let's face it. You're looking at 7% dividend yield on Telus, 8 1/2% on BCE.
Even if there is a bit of hair on these names in terms of competition, people are going to find that pretty attractive in an environment where interest rates and bond yields are coming down.
>> For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the website at the end of this program.
So that's the interest rate environment.
Let's talk about the competitive environment. Obviously, the players are going to say, you comprise whatever you want, we will not step back and let you take market share. Could we see an easing of that competitive space this year?
>> I hope so but it doesn't seem like it's going to happen right away. We just came through earnings season and we had conference calls with all the major operators, Telus and Quebecor were the last report on Thursday last week.
Quebecor was asked multiple times about their aggressive pricing strategy. Their numbers in some places were not great.
They are seeing a significant reduction in their average revenue per unit in the wireless base due to their low pricing.
People were asking, are you going to let up or ease on your pricing?
There signal was basically no, we are here to gain market share, we are the disrupter and the message saying they are giving is a bit scary for some people.
I expect it will ease at some point.
We always see the pendulum swing back to the middle at some point in this industry.
We have seen people fearful that a price war would last forever, rarely does it.
Cooler heads will probably prevail. I should point out that we did see the three incumbents, Bell, Telus and Rogers have changed their prices, they are now doing $39 for 20 gigs of data.
There has been a bit of a green shoot from them.
But Quebecor and freedom have not followed that path higher which they were hoping to see by now but it's not happening just yet. I think we probably have to figure out how to value the stocks and what upside there could be even if pricing, I don't think it's a lot worse but we have to assume it does get better.
>> Now we hear from some of these names at the regulatory environment is not favourable for their operations. Let's break that down in terms of how do you see it in terms of the regulatory environment and you think there is relief coming from the CRTC?
>> When I think regulatory, I think broader picture to start with is government efforts on population growth and housing growth sides.
There, there could be some impact for sure if this government or any future government wants to put further restrictions on foreign students or permanent immigration. That has been a very nice tailwind for the wireless industry due to record levels of subscriber growth in 2022 and 2023. If there is a more substantial reduction in population I would consider that the biggest revelatory or government risk that we face. In terms of the specific regulatory, the CRTC, really nothing, nor should there be. The competition in the market is taking care of all the problems.
Every time CPI stats come out, a big outlier versus increases in the price of most codes for consumers, the big outlier is wireless down 15 to 20% year-over-year, Internet prices not down as much is that but they are still down in the single digits. If I'm the CRTC or politician, I'm probably saying, look, I'm not going to congratulate the telecom industry, that would not win me any votes, but do I want to focus on this? There's a lot of other fish they need to fry. The telecom's are saying the things we have done in the past decade to create more competition seemed to be working on their own and we don't need more regulation. So I'm not worried at all about incremental CRTC decisions.
We are just keeping our eye on population growth.
>> You put all this together for the telecom space, obviously, some investors may feel frustrated and wonder what's going on. Longer-term, what should they be thinking?
>> I think you want to focus on the names that have the ability to generate good cash flow even if we are in a lower for longer scenario in terms of pricing.
And there are a couple of names that can deliver that, and then sustain good dividend growth.
So that's what I would encourage people to do, to keep their eye on the fundamentals of cost-reduction and capex reduction which are sometimes overlooked facets of this industry. Everybody's been so fixated on subscriber growth and revenue growth for years that it overlooks the fact that there is a very positive underlying trend going on whether it's generative AI, new network technologies, self installation at your home. Across the board, there are substantial cost reductions going on which means a lot of these companies can still generate mid-single digit, even high single-digit cash flow growth even if the revenue growth is almost 0, so I would leave it there for now.
There are certainly some names that are better set up for that than others.
>> Fascinating stuff and a great start to the show. TD Cowen covers BCE, Telus, Rogers and Quebecor.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the website at the end of this video.
We are going to get your questions about telecom and video stocks were Vince Valentini and just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
The stock at the centre of the pandemic era meme stock crazes on the move today.
We showed you shares of GameStop earlier the show, they are up 70% at this hour, this is after Roaring Kitty, that's an online handle, this person is credited with inspiring the short squeeze of 2021.
Apparently they are back. They posted on social media for the first time in about three years, seems to be what's behind us.
Other meme stocks including AMC Entertainment also seeing some gains today in the wake of all this. We will keep our eyes on that one for you.
BHP Group says it has a sweetened offer for rival minor AngloAmerican, but it is still being rebuffed.
AngloAmerican had already rejected a $39 billion all share takeover proposal from PHP last month. Today, BHP says it revise the offer valued now at $43 billion but that has also been rejected.
Shares of Squarespace are getting a boost today. The website platform is being taken private in a nearly $7 billion US deal.
Private equity firm Permira will pay $44 per share for the New York City-based company.
That stock is up 13%. Quick check in on the markets. We will start here in Toronto with the TSX Composite Index. Modest downside for us today to start the trading week.
About 1/10 of a percent. South of the border, we've had a nice run in equities, we've had a strong earnings season. The next test for the market will be this Wednesday with another print on US inflation. Right now the S&P 500, it's basically flat, up two points were for ticks.
Okay, we are back with Vince Valentini, we are taking your questions about telecom and media stocks.
What's your view on Bell?
>> Bell is still a bit of a sore spot for me. It is-- they have the ability to lower costs over time and they have the ability to bring their capital expenditures down, but they still have a lot of spending to do on their fibre network. They are about the records of the way done by getting the last 25% of their homes upgraded from legacy copper fibers probably going to take them another four years. They have actually started slowing down the project a little bit as a result of some of their cash flow concerns. I think that creates a situation where we have a long period of time where their dividend is going to be well in excess of the free cash flow they are generating.
The ratio this year is almost 175%.
There is some elevated restructuring and severance costs, some issues in terms of taxes and working capital, but even when things normalize a little bit, they are still in the range of 120% by our math looking into next year, so there are other names, tell us that reported last week for example, in a much better situation in terms of their dividend payout ratio, much closer to the inflection point on five or be complete so they can lower their cap ex starting now and they have the opportunity to lower their operating cost structure.
About making things appear. We see it in numbers. Bell has slowed their dividend growth from 5% down to 3%. Telus just stayed at the same pace of 7% as of last Thursday. You are getting much lower dividend growth which would be compensated for by the extra yields are getting. If you think the whole sector is going to do better and you think bond yields as you were talking about will come down, BC would be a little higher but I think other names will do better.
>> We have a viewer right now listening to the conversation about BCE. You mentioned that the dividend growth has been slowing, the yield is quite high. They are asking, do you think Bell could cut the dividend this year?
>> They are absolutely against cutting the dividend in the near term.
They are going to do whatever they can to not cut it.
I therefore would say the odds are pretty low of a cut because when you look at the alternatives, they could sell some assets to help pay for the dividend, they could institute a drip discount program to pay for some of the dividend in shares as opposed to cash. So if they don't want to cut it, it's probably not going to get cut anytime soon.
Your questionnaire was savvy to say next year versus this year because that does then begged the question, what if the industry fundamentals get even worse?
What if the pricing challenges we are seeing across the board that don't just impact Bell, they impact all of the carriers and Bell is not immune, it that continues and gets worse, I could never say never, there is a point at which the dividend is just not sustainable and it could have to be cut but more realistic is just that the growth could slow even further. You are getting a token 1% dividend growth per year which may be enough for some people but I think they're better options out there.
>> That was BCE. Let's take another audience question.
Can we get your guests take on RCI, Rogers?
>> So Rogers obviously has nothing to do with the dividend story that BCE and Telus are because they have not raised their dividend for years and people generally don't go in for the yield. Rogers has a totally different set of challenges which is they took on a set of that last year to buy Shaw. They knew they were going to be able to pay that debt down through free cash flow generation and all the synergies on that deal.
Plus, a bunch of non-core assets that they experience sold. I think Rogers is in great shape.
They have already achieved the full run rate from the synergies that they identified at the time of the Shaw deal.
They have not done as well as I would like on the asset sales yet but I think were could be coming over the next few months, selling some non-core real estate in a couple of non-core businesses. They've identified $1 billion that they would like to raise to pay down some of their debt even faster. So put that all together and their debt which was over five times leverage at the time of the Shaw deal closing last April will be down to buy our numbers 4.4 times by the end of this year and then under four times at some point during 2025 which is effectively the same level that BCE and Telus are at. Once Rogers can get there leverage under control, I think their shares could do well. I would throw in one of the wrinkle though. Their wireless business has been best in class, their operator is fantastic, their scrubbers are well above Bell and Telus. Unfortunately, their cable business has been struggling a little bit to get some of the immigration benefits and some of the revenue synergies they would like to have found. They are at minus revenue growth and cost cutting is offsetting that for now but some investors are concerned that cost-cutting will end at some point, the synergies will fully play out and they need to get back to positive revenue growth which the management team is very confident they can do by the end of this year but I think the investment community is a little unsure so that is one of the reasons the stock is underperformed a little bit recently. I think it's a manageable item and I have confidence that management will turn things around in the next two or three quarters. As you talk with those asset sales of non-core parts trying to pay down the debt.
Given the performance of some of their rivals, who is a buyer in this environment for some of those assets?
>> Non-core means not a telecom asset.
They have a bunch of excess real estate that they have amassed over the years so that's the bulk of the non-core assets they are looking to sell. Another challenge is if it was an office building, there is not much demands of their having to rezone some of their properties to either industrial or residential use.
They've been working at this for almost 2 years now so I think they are getting close to the finish line. They also have a data centre business which is non-core with GS may be on the periphery of telecom but it's obviously a different sort of category and there's a ton of demand for data centre capacity in the right areas across Canada and the US, especially with generative AI demands that has been created in data centres. It's not like they are looking to sell wireless or cable businesses. That would be challenging to find a buyer, maybe even more challenging to get regulators to approve anything.
>> Interesting stuff. TD Cowen covers BCE, Telus and Rogers. For more information, and a link to companies covered by TD Cowen, a division of TD Securities, can be found at the end of this video.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Vince Valentini on telecom and media stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
In today's education segment, we are having a look at TD's Advanced Dashboard, plat form designed for active traders available through TD Direct Investing.
Ryan Massad, senior client instructor with TD Direct Investing joins us now. You're going to show us how we can customize our experiences and placing a trade in Advanced Dashboard.
>> Definitely. One of the great things about Advanced Dashboard is customization.
From watch lists to everything else on the platform. But we are going to focus today on order entry, you can customize that.
Let's jump into Advanced Dashboard and check that out right now.
So I've got a nice little set up with one of the easiest ways to place a trade here is going to be off of your watchlist, whether click on a bid were asked, it's going to open up a floating trade ticket here and the nice thing here is compared to other platforms, if you click on yet another ask or bid, it will open up another order entry ticket, so it just allows you to have a couple open at a time, maybe waiting for a particular announcement or piece of news in order to send over an order. Off of the watchlist, there is another way. On the left side of the watchlist, there are these three dots.
If you click on them, you get a bit more of an extensive type of list of how to place a trade in addition to the buy and sell.
Now, in addition to that floating ticket, if you really find that you want in order to get to sit on screen or most of your trading, you can actually create that yourself. If you click on the trading from the top here, you can add an order entry component or what I have here is a quote detail component because in that quote detail component, I've got a number of things, including order entry. And what makes this nice is you can link your watchlist using this channel configuration, send anything that you got on here over to this item here and we receive and that way, every time that you click on something here on your watchlist, you are able to see it populate in this order entry ticket that will stay on screen the whole time.
That is just with the order entry ticket.
Maybe you are a technical trader and you like to use her charts a lot. Trying to trade off the charts is completely something you can do you on Advanced Dashboard.
On Advanced Dashboard, I've got my chart, I've got this red cell button, I've got this green buy button and I can click on those and open up in order to get it right off of the chart. If I want to see more chart or quote information, I can go into the top right corner of the chart, click on this little gear and then I can's howl Advanced Dashboard what I want to see on the chart and this dashboard can actually show me a couple of things so that I don't have to go off into another screen, so I can see bids and asks on the chart, I can see the high and low if I wanted to as well and that way he gives me a better idea of what things are happening on the chart.
So quite a few ways that you can customize and place trades on Advanced Dashboard when it comes to making it as efficient as possible.
>> All right, Ryan, we are talking about customization. Is there a way to customize those values that populate the order entry ticket?
>> Definitely! That's another thing you can do so let's jump back into Advanced Dashboard and check that out.
On the top right corner, you will always be able to hit this little wrench here and go into the settings.
Under the orders, right here is where you can really hone in on the exact items that you use all the time when you're placing your trades. What default order quantity do you want to pop up every time you open up in order to?
You can always change that after the fact, but just to have something that is there consistently.
Do you want to market order, a limit order that you have all the time? What kind of duration do you want to always appear on your orders? Is it a day order, good till date, good till cancel? I encourage you to go into the screen where you can customize your own trade ticket. It's going to make yourself a more efficient trader and really take advantage of the customization features of Advanced Dashboard.
>> Great stuff as always. Thanks for that.
>> I appreciate it. Thank you.
>> Our thanks Ryan Massad, senior client instructor with TD Direct Investing. For more educational resources you can check at the educational centre on my broker or use this QR code that will navigate to TD Direct Investing's YouTube page where you will find more informative videos.
We are back with Vince Valentini, taking your questions about telecom and media stocks. This one just coming in in the past couple of moments. Can you guess please give us his view towards Corus Entertainment?
>> Happy to give my view.
Specifically Corus, it's a challenging time for them. They've given guidance that their advertising revenue is going to continue dropping by double digits, 10 to 15%. Coming off of enemy distortions and then the Hollywood strikes of last year, they are struggling to get back their mojo. Sports advertising seems to gotten some audiences and advertising revenue back. Digital media is getting a lot of ad revenue back with those traditional entertainment channels that Corus is known for, I think it's taking longer than people expected. From a stock perspective, that creates a situation where over 95% of the enterprise value of the company is now in debt as opposed to equity, so the equity has become speculative in my view.
If people are bullish on recovery in the advertising market which means you probably have to be bullish on consumer spending and overall economy which is maybe difficult these days to be bullish on, but if one is, you probably want, a safer bet is to be owning their debt in publicly traded bonds which are trading at a very high yield as opposed to the equity at this point.
So call that one bit of a speculative name that is going through some challenges.
Just a quick word on, that doesn't mean that the entire ecosystem of advertising and media is weak. We do have digital media names in this country. They are not all US-based. There is one called VerticalScope that we cover. It's actually a performing stock in our investment universe. Your today, the stock has more than doubled since the beginning of January. They are seeing tremendous resurgence in audiences and advertising on their community sites.
Many people would be familiar with Reddit.
VerticalScope is basically the same thing in terms of online community forms in niche product areas. This other advertising revenue, total ad revenue, bounced back to positive 14% in the first quarter versus -6% in the fourth quarter of last year and the guidance management just give a couple of weeks ago was that that will be even higher growth in the second quarter. So there are other media names out there with better underlying growth trends than Corus.
>> That's an interesting name for viewers to do homework on.
We had another question common. With all the substantial challenges, what is a possible future for Corus?
Is it being taken out by another company?
Is it starting to get worried about as a going concern?
>> We actually just got a CRTC decision this morning that will be a little bit beneficial to courts, and that steers you down the path of the answers that question which is there probably has to be some sort of regulatory reform to either significantly change the cost structure for legacy broadcasters Lycoris or allowing more consolidation which the Canadian government ends CRTC still have pretty strict rules about who is allowed to own how many TV stations and radio stations.
So one of those two paths are both ultimately I think is the outcome if this company is going to continue as a going concern, they are going to need the CRTC to lower their Canadian programming expenditure which was part of the decision they got this morning from the CRTC and ultimately the government is going to say if we want strong, vibrant broadcasters to share Canadian voices and put Canadian news on, they are going to have to allow a bigger stable company sold assets and there are obviously other players in the area like Rogers and Bell with better balance sheets etc. than Corus.
Consolidation could be the future.
>> Interesting stuff there on Corus Entertainment.
Another audience question. Someone wants to get your take on Quebecor.
>> Quebecor, as we talked about earlier, is the disruptor player in the wireless industry and the transformative deal for them last year was acquiring freedom mobile so they now have an international presence as opposed to just being a powerhouse in Québec which they had been for 20 years in the cable business.
They have started to labour in Internet services and TV services to bundle with wireless freedom business recently. They also just launched their all digital… Called for his mobile which had been in Québec for years and now just launched in Ontario, Alberta and British Columbia.
The company is very exciting.
Lots of growth. They are disruptive player trying to nibble at the heels of the Big Three and Cummins, Rogers, Bell and Telus.
Some investors are pretty excited about that. As the disruptor, they may have better economics and a lower cost structure and also a lower starting point on market share to be able to take Sharon I certainly see those benefits. I would be lying if I didn't say that recently I have been disappointed with their pricing. They are getting the volume growth in subscribers and wireless but it's being almost entirely offset by reduced pricing.
Average revenue per user, keeping that Black Friday pricing throughout the year into May. There wireless service revenue growth is not where I would like it to be.
We are constructible the name we will call it but I think they could be doing better and we would rather see some stabilization and pricing to place them high on our pecking order.
>> Interesting stuff on Quebecor. Someone wants to get your Outlook for Cogeco.
>> Cogeco has no exposure to the wireless business in Canada.
They aren't being affected by the disruption that the other players are facing. Half of their business is in the US cable market versus the Canadian cable market and US cable has been under significant seed for almost 2 years now from new players building Firebird to compete with traditional cable networks and a lot of fixed wireless competition from Verizon and team mobile. These are types of competition we don't really have in Canada, so the Canadian cable market has been more stable. In the US business, they have been losing subscribers. The revenue has been under a bit of pressure and that has been partially offset by pretty good results in their Canadian cable business. So we need to see is Cogeco make some actions with their assets that we give people more confidence.
The share price is trading at an almost all time low in terms of valuation. It's around five times. So clearly people are looking for better news from them and a lot of that is priced in. So what we need to see is better shareholder actions.
They do have a new CEO who just started recently and he's just sort of gone around in the investment community. He sounds like he is a very good plan. He has the supportive the controlling shareholder which is the O'Dea family. He has the support of his board to go out and do some shareholder friendly initiatives. They been talking about potentially pruning the US asset base. There is still a pretty vibrant private market for cable assets in the US whether it's under table operators are private equity players so potentially Cogeco could sell some other US cable systems and repatriate that money to buy back shares or reinvest in Canada.
They also have identified that they want to try to do some sort of partnership with wireless in Canada which would fill a gap in their product portfolio. They are up against bigger players like Bell who can offer wireless plus Internet. Cogeco being able to do that would be great as long as they don't have to spend a ton of money on capex to build their own network.
This new CEO sounds like you got a plan.
I have a Xiaomi attitude to see if he can deliver on the plan but the starting point is they have identified what they need to do and I am reasonably confident that especially with the valuation where the shares are that all the bad news is priced in and there is upside potential if this new CEO can deliver.
>> Interesting stuff on Cogeco.
TD Cowen covers couriers, VerticalScope, Quebecor and Cogeco.
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The long-awaited recovery in the Canadian auto industry is well underway after robust sales in 2023 and inventory levels are touching a three year high to start the year. Anthony Okolie has been digging into a TD economics report on all this, the road back to normality for the Canadian auto sector.
>> Vehicle sales in the first quarter of this year have gotten off to a strong start. Sales were up 9% year-over-year led by a 17% jump in core volumes well light trucks which accounted for about 80% of light vehicles were up a modest 7.6% year-over-year.
Auto demand has been surprisingly resilient despite the fact that we have seen some economic challenges facing Canadians. Sales growth in 2023 was actually roughly in line with that of the United States despite the fact that the Canadian economy grew at half the rate of the US last year. Pent up demand and supply constraints were a key factor, build up of pandemic savings. Population growth in Canada was also a big boost to sales. I will get to that later in the show.
TD economics has had the for 2024, Canadian car sales, they are estimating them to come in at 9.6% growth this year to 1.9 million units with sales reaching pre-pandemic levels next year as the economy recovers and lower rates… They see North American audit reduction of 3% as automakers continue to adjust to the post-pandemic market. In contrast here in Canada, they expect production to fall.
That is really due to some temporary shutdowns of the Stellantis, Brampton and Ford, Oakville plan submitted upgrades to the EV and hybrid vehicle production.
Meanwhile, the Canadian labour market continues to be moderately supportive of auto demand.
While we have seen labourers supply growth outpacing labour demand growth as the chart shows in 2019, full-time job growth was actually above that seen in 2019, pre-pandemic. This has contributed to the resilience and real income growth and has lifted household disposable income. When it comes to housing costs, we are seeing some headwinds there. Roughly 2/3 of Canadian households have either seen their housing costs rise or expect them to rise at some point in the future. On aggregate, this remains a headwind to consumption and by extension auto sales. However, Canadian vehicle sales continue to grow despite these headwinds and TD economics points to two key factors. One, delayed post-pandemic recovery and consumers, again, expected to push sales higher moving forward with moderating vehicle prices, as the chart shows, we have seen prices slowing, as well as lower financing costs. Those are providing some support to growth in auto sales in the second half of the year.
Now, the second factor, of course, is a push vehicle sales is population growth as people going to work primarily rely on vehicles.
TD Economics expects vehicle sales in Canada that will grow roughly 10% or 1.9 million units as the chart shows before slowing to 4.2% in 2025. While healthy inventory levels and lower financing costs continue to provide some tailwinds and improving affordability into the new year.
>> Past any forecast. What's the risk?
>> TD Economics points out the main risk is that population growth may have a stronger feedthrough effect than expected.
While at the same time, moderating economic growth and the potential for persistent portability challenges could weigh on sales as well.
>> Interesting stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets. We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Look at the heat map, starting the TSX 60.
You want a little bit of a bid into some of the financial names.
Sun Life pulled back last week on his earnings and is regaining some ground.
It's a bit of a lacklustre day.
Across the border, pretty good earnings season on Wall Street. Signs the labour market might be cooling. Big test coming this week, that's Wednesday mornings inflation print out of the states. As we look across the border right now, a bit of a mixed bag in the technology space Google or Meta showing downward pressure but a bit of a bid into Intel and were modest for Nvidia. Tesla and Ford, two different kinds of automakers although Ford makes EVs as well, getting a bit of a bid today.
We are back with Vince Valentini from TD Cowen, take your questions about the telecoms and media stocks. Someone is asking, streamers are increasingly bidding for sports broadcast rights. How could this impact the Canadian telecoms?
>> This is a very interesting topic because we just recently saw Amazon prime bid for some of the rights so they are going to be showing all of the Monday night NHL game starting in the next season, the 2024, 2025 season. Those rates have been prepurchase by Rogers for a period of 12 years so effectively Rogers is subletting some of their rights to his streamer with the support of the NHL as well. So I think that tells you that this is a trend that's coming. We have seen that in the US already. Apple shows baseball games, prime has lots of football games, almost everybody has dipped their toe in, even Netflix has bought some sports rights through WWE. So I think we'll probably just see more and more fat so the topical thing in Canada is that massive NHL contract comes up for renewal in 2026 and obviously hockey is the most talked about content in Canada.
It would be very interesting to see how that gets split up. We'll all go to Rogers again? Is it going to be split between the traditional broadcasters of TSN and Sportsnet? Effectively, Rogers and Bell.
Or are we going to see a chunk of those rights go to streamer players like prime?
I expect it will be the latter direction, and a more even split over time which is not a bad thing. If half of the hockey games are on Sportsnet, you're probably subscribing still if your sports fan and if the other half the games are split up between other broadcasters and streamers, you don't necessarily lose your core subscriber but you do lay off some of the costs which are very expensive rights for any sports these days.
>> Interesting stuff. We are out of time for questions. Before I let you go, we started the show talking about some of the tough returns we have seen, the pullback we have seen in telecom stocks. What do investors need to think about for the year ahead?
>> I'm glad you brought it back to this. I don't want to be too negative here. The key to investing is partially looking at what's already priced into the stocks. The stocks are priced can a lot of bad news.
Telus used to be traded over 10 times, now at 7 1/2. Rogers used to be 8 1/2 and now it's at 6 1/2.
These companies did not change their guidance for the year. They are still trending towards what they thought they could do when they give their guidance in January and February. Telus as I mentioned earlier still has a dividend at about 7% per year.
If you look at timing, bad news is already priced in, eight you don't necessarily need a massive improvement in the pricing environment that we are seeing in wireless and cable business, all you need is stability and then cost-cutting and these companies could still be around for many years generating good cash flow and good dividend growth. There is definitely some opportunities out there and on these valuations I'm pretty instructive. As always great to get your insights.
Appreciate you dropping by.
>> Thanks.
>> Vince Valentini, Managing Director for equity research at TD Cowen.
As always, make sure you do your own research before making any investment decisions.
For full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the website at the end of this program.
Stay tuned for tomorrow show. Jing Roy, VP, Dir. and portfolio manager for asset management at TD asset allocation will be our guest in your questions about asset allocation. He can get a head start with those questions.
Just email MoneyTalkLive@TD.com.
That's all the time we have the show today. Thanks for watching. We will see you tomorrow.
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