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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 the outlook for the Canadian telcos.
TD Cowen's Vince Valentini joins us.
MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on January Canadian home sales numbers.
And in today's WebBroker education segment, Jason Hnatyk is going to take us through another type of conditional order you can you tell a platform, this time it will be a one triggers another order.
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 to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. We had a sizable step back on Bay Street and Wall Street yesterday on the heels of the hotter than expected inflation report. We are gaining back some of that ground today.
At 20,774, we are up 190 points, just shy of 1%. Baytex energy is giving up some of its earlier gains, not as firmly and the green is when I picked this one to show you. At four dollars and 26 cent her share, they are up about 1/4 of a percent.
Let's check in on Barrick Gold. This is an example of something to the downside.
Right now it 19 bucks and change, your down a little shy of a full percent.
At with the latest production numbers, I'll tell you more later in the show.
The S&P 500 fell off yesterday was sparked by the hotter than expected US inflation or, gold and bonds went higher, equities not lower. Your apples 13 points today, almost 1/4 of a percent. Let's check in on the tech heavy NASDAQ. 67 points to the upside, little shy of half a percent.
I want to check in on it. They had a blowout quarterly earnings report last week. Now they are announcing their first ever share buyback program.
That stock is up 11 1/2%. And that is your market update.
The big Canadian telecom stocks have underperformed the broader markets over the past year, but are there any signs of better days ahead in their latest earnings report? For more on this we are joined by Vince Valentini, managing director for equity research at TD Cowen, which is a division of TD Securities. Welcome.
>> Thanks very much. Thrilled to be here.
>> Telecom stocks are some of the biggest names on the TSX Composite Index.
People are well acquainted with them.
They are thought of as blue-chip study eddies. It hasn't been an easy go for them in the past year or so. What are we seeing in the telecom industry overall?
>> Let me give you my thoughts about the industry and we can drill down into some of the details of what's been happening in the past 12 months or more recently. I've been working in the industry for 30 years.
I think it's a good industry. First off, they saw what are pretty much nondiscretionary services.
Everybody needs their cell phone and Internet connection.
These companies provide the plumbing to make those services happen.
It is digital infrastructure that is never going away.
I like the longwave infrastructure characteristic of the industry. We have a good regulatory system in Canada. There are always ebbs and flows and criticism at times.
But for the most part we have a self-contained Canadian industry with strict foreign ownership rules. That provides a huge barrier to entry. We are never going to face competition from the likes of T Mobile or Vodafone, somebody who would have a much bigger scale to upset the apple cart for our bigger players.
These companies are not high-growth entities but they generate stable, slightly growing cash flow which they deployed to share buyback for dividends or sometimes pad their growth with acquisitions.
At that level, I think the industries will position for the longer term. Last but not least, it is not overly expensive, considering the type of infrastructure they have.
If we look at virtually every other class of infrastructure assets, whether it be pipelines or railways, green energy projects, a lot of times those trade in the range of 10 to 15 times and telcos trade at 7 to 8. At one point they were at nine so they've come down a little.
>> We often think of these as the blue chips and study eddies. If you look at the last year's performance of PCE or Telus or Rogers even against the TSX, the TSX hasn't gotten much over the past year but they are dramatically underperforming.
What are we seeing in these names? Was there anything in the results that are moving us forward now?
>> Let me start with last year. I hate to admit it as a fundamental analyst because we are digging into the weeds of what the companies are doing and who's doing better than others in managing their cost structure but at the end of the day, the problem with the stocks is bond yields.
They are cash generators and people look for the dividend yields. Almost like bond proxies in some extreme cases.
The biggest issue last year was clearly after many years of ultra low interest rates, we finally saw a rates rising in bond yields up quite significantly.
So magically after the peak in October from October till the end of December, you sell the telcos rally which was again largely bond yields coming back down. If you are constructive on the outlook for bond yields, which our teams at TD Economics are, that they will be lower a year from now, that I think the stocks will have a much better year. The last couple of days it's been rocky with the CPI number so there will always be volatility but in general, I think that headwind will turn into a tailwind and help most of the stocks in the sector.
In addition to that, there were a couple of fundamental factors last year that scared people a bit more than normal. We had some major transformational I call it M&A activity in the space with Rogers acquiring Shaw cable and the spinoff of Shaws wireless business had to go to Quebecor to get regulatory approval. That caused a lot of consternation in the investor community about what is this new world going to look like, are we going to have more competition than we are used to, are there going to be price wars, and Quebecor becoming a national wireless character for the first time. There was a lot of noise. Price wars hasn't turned out to be the case. There is certainly competition in the market but nothing I would call outsized.
But for a few months last year, there were concerns that things will get worse than they did. The last point I would say just regulatory which is somewhat linked to the Rogers-Shaw deal as well. It would the government and CRTC come out firing after that deal saying that we let the industry consolidate and now we are going to hammer you with more stringent regulations, potentially forcing you to open up access to your networks at supercheap rates for resellers to come in and various other sort of small regulatory files that were on the docket last year.
Again, a lot of concern from some analysts on Bay Street which really didn't materialize.
We saw a couple of regulatory outcomes late last year which were very favourable.
They showed steady as she goes. The government at a high level likes the industry.
No politician can admit that very easily but the industry invests very well in high quality networks. They want to incentivize investment.
So they're probably not going to do anything devastating to hurt them is my view and we saw evidence of that last year. To your point, bond yields rising cost concerns and some elevated regulatory concerns which have now pretty much fallen by the wayside is why things didn't do very well last year and why I'm constructive over the coming months.
>> Some big names for the audience. For full disclosure on the companies covered by TD Cowen, you can see the link to the TD Securities website at the end of the program.
We recently had a batch of earnings and that's important for the three months behind them and also for what they are saying about the months ahead. Did anything stand out that investors should be aware of?
>> We in the past two weeks have had BCE, Telus and Rogers all report their fourth-quarter results. This is an important quarter because at this time of year, they almost always give us their annual guidance for the following year.
So we got 2024 guidance from all three of those companies.
I would say a couple of wrinkles and things to be concerned about, but for the most part, the results were quite encouraging.
First point I would probably say is wireless market remains very strong.
Canada has gone through a couple of years of record levels of subscriber edition, in part driven by immigration and foreign students but also just people adopting more devices than they ever have in the past.
So we had 2023 the total industry wireless subscriber additions up around 1.75 million, which was right in line with 2022 which was an all-time record year. That's about 5% growth in volume for the industry.
We saw evidence of that in the fourth quarter results. We saw nothing in the guidance for many of the companies to suggest that the pace of growth is going to slow down dramatically.
Rogers has indicated 42 4 1/2% for 2024 is where they think it can settle in which factors in some of what the government is doing to limit foreign student visas, but it's not going to crater the industry growth, it just slows it down a little from a very high level. So the results were encouraging in terms of that underlying volume growth.
We also saw staple… Which goes back to what we were talking about earlier.
>> I remember so many acronyms from when I started to cover this industry.
>> Catch me on any of that.
It's a key metric of what are the wireless carriers getting from each customer per month. If that metric starts to decline, we are concerned that there is too much competition in volume growth is being offset by pricing and you don't get the revenue and profit growth. We saw a RPU relatively stable which refutes some of that noise I was talking about in the early part of last year where people thought we were going to have price wars and elevated competition after Quebecor took over freedom. No evidence of that in fourth quarter results either.
Now back to the ebb and flow that I mentioned, not that everything was perfect. Some providers are executing better than others and getting their share of that volume growth, managing the cost structure well which translates to the most important metric for analysts like myself which is… Growth which is a proxy for free cash flow. Free cash flow runs around. We tend to focus on the… As the main comparative metric. We saw guidance from Rogers for 6 to 9% growth in 2024.
Telus is at 5 1/2 to 7 and have an BCE that one and 1/2 to 4 1/2.
Rogers seemed to doing a little bit better. That is organic growth for all three of them.
Backed out of the Shaw contribution for one quarter.
Better execution from some verses others was notable in the numbers. And then last but not least, free cash flow and dividend quality which is very important to investors in this space, especially for BCE and Telus which are the two highest yielding names.
There, we saw pretty good performance from Telus. Free cash flow guidance in line with what we thought, seemingly supportive of them continuing what they been promising for some time which is to do at least 7% per year dividend growth whereas BCE slowed their dividend growth for the first time in 15 years. They have been doing 5%, they lowered it to three and their free cash flow growth guidance for 2024 was quite a bit below what most people were expecting and they are expecting a decline of between three and 11%.
Not everything was perfect in the results.
There were a couple of weak spots depending on which company you look at. At a high level in market growth, the market sort of price dynamics were clearly still trending in that direction.
>> TD Cowen covers BCE, Rogers, the Quebecor and Telus. For full disclosure on companies covered by TD Cowen will be found at the end of the video. Great start the program. Great stuff about the telecom industry. We are going to get your questions about telecom and media companies for Vince Valentini in 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.
Uber Technologies is announcing its first ever share buyback program, saying it's going to repurchase $7 billion worth of its stock. This news comes on the heels of over reporting stronger-than-expected quarterly results last week in its first ever annual profit as a publicly traded company.
You can see the stock up right now to the tune of a little more than 11%.
Also want to check in on shares of rival Lyft in the spotlight today. The company stored some 60, 60%, in after hours yesterday. The company is forecasting a 5% expansion of adjusted earnings margin. The company then had to issue a clarification, that metric now expected to expand 0.5%, not 5% as was erroneously recorded in the first release.
Despite that, the forecast is still pleasing the street. At $15.96, the stock is up 31%. Barrick Gold has been one of the most actively traded names on the TSX Composite Index today. Investors reacting to the minors 2024 production guidance.
In a note to clients, TD Cowen says Barrick's cash cost guidance is coming in higher-than-expected. That is likely due to several factors including oil cost and labour prices. Right now Barrick's at 1904 per share, down three quarters of a percent.
Big selloff on the S&P 500 yesterday.
It's… Up 11 points, also clawing back some of its losses of yesterday, up about 1/4 of a percent.
We are back with Vince Valentini, taking your questions about telecom and media stocks. Let's get to them.
Here's another one in the space. What is going on with Corus Entertainment? I think we looked at it when you're chart of the stock, it's been under pressure to say the least.
>> It certainly has. Actually, I just look at it before I came over to the studio and on a year-to-date basis, is actually the best performing stock in my sector. It's up 24% but that's a bounce off of a very low level. The stock has been weak for a number of years.
Very similar to what I mentioned about the telcos having that stable infrastructure and somewhat boring but consistent cash flow growth, course unfortunately finds itself in a much more volatile industry, which has faced some pretty severe headwinds over the past 15 years now with things everybody knows, Google and Facebook coming in and taking the lion share of the advertising market away from legacy broadcasters and linear media and the rise of Netflix and other streaming services that are gaining way with their audiences.
Despite those things, the company was still holding up, being able to do sort of reasonably good quality content that it was still capturing eyeballs, viewers, and they were doing a good job pivoting to get a lot of their services onto digital platforms, such as their stack TV offering were most of their key channels are offered in the digital streaming format.
The rails kind of came off just before the start of 2023 when we had an advertising recession kicked in and they still haven't really recovered from that.
Advertising tends to be a very leading indicator in terms of recession and the overall economy where even though we may or may not be in a recession in general, a lot of businesses thought we were heading into one so they immediately cut back on their media budgets and advertising spend.
That started to her quarters early in last year and then they got hit hard by the strikes in Hollywood a writers and actors so they ran out of content and had low viewership numbers during the critical fall..
Some of those things should recover. They are starting to get their new TV shows back. As of February, some of them are starting this week, the content is back on their main channels such as global TV, highball should come back, advertising has not quite bounced back. Typically in every recession we have tracked, there will be a bounce back at some point.
The timing is unclear. The last one I would make is what else could happen? I think that the stock could still have some legs to recover. It is not for the faint of heart. It is speculative, more speculative name and higher risk than the telcos that we covered.
But in terms of the upside scenario, I think it has to come from consolidation in the industry and regulatory reform. We do have a new broadcasting act in Canada.
There are some significant changes this year the CRTC is considering in terms of how legacy linear broadcasting companies have to create Canadian content and how much money they have to spend on it. If they get material relief on that front and their cost structure comes down, the cash flow will improve and they will be able to pay down more debt and I think the equity value could follow higher. And on the biggest thing would be consolidation. If the, if Canada wants a sustainable, strong broadcasting industry in the face of competition from global giants like Netflix and Google, then they really have to let larger, well-capitalized companies own more assets because there are some pretty strict rules on that. If those will start to break down in coming years, course could have an opportunity to sell some assets or even its whole company. I don't think all is lost but it's certainly a more challenging environment than most of the telco names we cover.
>> That's a nice lead-in for the next audience question.
Wondering if we are going to see more M&A activity in the telecom sector and how that could impact the industry.
He said there are barriers right now to M&A in the space.
>> It could take years of legislative change and a strong stomach from politicians to break down those rules because you're going to lose head offices and jobs.
I think certainly for the remainder of my career being a telecom analyst, I don't think we will ever see… Go away which means we won't see mega deals like Verizon coming into by Telus or BC. That leaves us with sort of made in Canada solution. Not much left to do you on that front. Rogers has already acquired Shaw. That was the biggest deal out there that could've happened. BCE bought Manitoba tell which was a regional consolidation. So we are left with BCE and Telus with their halves of the company that they cover. Very difficult to see regulators to allow those two companies to merge. Rogers could by Quebecor but there does not seem to be any interest from either party to do a deal.
Cogeco was already tried by Rogers a couple of years ago.
A rich takeover offer that the family that owns Cogeco rejected so it seems like it's off the table as well.
It may not be the exciting answer but I don't think there's too much high-level consolidation left to go. We are still just living with the aftermath of the big deals that happened last year. What is Quebecor going to do with freedom as they continue to improve the network, continue to invest more in marketing, get more scale, they are gradually increasing their market share. While they try to step it up and become more disruptive is probably the biggest question I get from investors in the space. Then secondarily, what is Rogers doing with their shop platform?
They are getting tremendous cost synergies out of it, they have better bundling capability across the country than they ever have but to put wireless with Internet in Alberta Enbridge Columbia for the first time and that is a better structured platform for future services in our NDN product development when it comes to 5G, not human services but machine services, the Internet of things, connected drones and vehicles, Rogers through that consolidation has a better platform to invest in that. There are interesting things that will happen in the aftermath of what we have already seen but future M&A will be pretty limited.
>> Interesting stuff.
For more information on the companies covered by TD Cowen, a division of TD Securities, can be found in a link at the end of the video.
As always, make sure you do your own research before making any investment decisions.
we will get back your questions for Vince Valentini 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 our education segments this week, we've been looking at the different order types available on WebBroker. Today, we are going to look at one triggers and other orders. We are joined by Jason Natyk, Senior client education instructor with TD Direct Investing. Great to see you.
Let's start by reminding us with why an investor would want to use a conditional order like this one.
>> That's a great question. Conditional orders are good for a number of reasons.
First of all, they are great to help us automate the order entry process. We can set it up kind of like a chain reaction of events so we don't always need to be at her computer and its way to execute on what we think is important in our account.
This is the key thing for me, it allows clients to execute on their investing plan, they can capture profits, mitigate some risk by limiting losses may be through the use of a stop order and I can also help us keep maybe a little bit of a motion out of our trading.
Let's jump into WebBroker and we can take a look at how they can be accomplished in the system.
First of all, we have a list of all of our conditional orders that are available in WebBroker.
This is the strategies order tab we are looking at a buy sell ticket. Take note, at the bottom of the screen, there is a video if you would like to learn more after these demos. Go on WebBroker and check it out to learn more. We are going to focus on the one triggers other order.
It's too orders that we are placing together.
The first order that we are going to be play saying, once it is placed, it will activate the second order. It can be used for common scenarios. At one, maybe we want to capture some profits. We place an order to buy a stock, it goes up, we might already have an exit strategy primed and ready to go to know that if it goes up to a certain price it will be executed.
Another common strategy, and investors looking to move and reallocate funds from one position to another. When that first order triggers as a cell, they can investing in for rebalancing purposes. I bought a charter behind the screen to visualize that first example of setting up profit targets.
There is a green light on my chart would represent the first order that would then get filled. It would trigger hours second order to come into play.
Let's draw secondary line on the chart.
I'm going to draw that now add a healthy profitable target for everybody.
Just talking through the order of events, this is the first order in green.
Once it fails, it will open up our second limit order if the stock does what we wanted to do.
This is to have an order in place to capture the prophets to keep it for ourselves as opposed to giving it back.
>> That we understand why to use order, let's talk about the howl. How would you make this sort of order on WebBroker?
>> That's a key detail. Let's put the theory into practice.
That's an easy part to this.
I will walk you through the order ticket.
We can get into our order strategies by either choosing the trading tab at the top of the page or like to use the buy sell button that is take care of the top the screen. I going to buy sell and then we have a series of tabs running across the top, to strategies. We are going to click on one triggers another.
We are going to put in our symbol, we were using SPY for our chart to list a consistent and use that.
Let's put order in at the market price.
Once this order happens to fill, we know it's a market order so it will sell right away, all we are going to do to set our secondary order from this example to capture profits, we are going to click on the bottom area, but our symbol that we used in the first half of our trade and then we can go ahead and sell the same number or quantity. We are going to keep the set a limit for this particular case.
Maybe we want a profit target of 15 bucks which I think we would all be happy with taking away that kind of profit. One thing to know is that they are time in force. It needs to be set as the same across different orders.
If you want to keep these orders on into further time periods, it's worth making sure we can choose between the good till a specific date or good till cancelled. Good till cancelled will keep orders for Canadian stocks open for 90 days and 180 days for US listed stocks. So you have those strategies in place to help you execute on your trade plan.
>> Thanks for that.
>> My pleasure.
>> Jason Natyk, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We are back with Vince Valentini, taking your questions about telecom and media stocks. Let's get to the next one.
How are chalices big labour cuts made in 2023 going to impact the results for this year in 2024?
>> Good question.
We saw that already. For the most part, revenue guidance for 2024 is in a range of 2 to 4%. Implied in that is margin expansion which comes largely from the cost restructuring we will call it that they announced last year which was a larger than normal program for them.
They are not alone, we saw a Rogers taking down a significant headcount as part of their shod deal. Last week we saw BCE and answer layoff of 4800 employees or 9% of their workforce.
Chalices may be a bit ahead of the curve of BCE of doing what is normal for the industry. It can come in sort of lumps at times if they see there is an opportunity to do it. These are heavily regulated, heavily unionized industries so they have to pick their times when they think they can do a corporate cost-cutting effectively.
But for the most part over time, what you see is new technology helping these companies operate with a lower cost structure. Things like self-serve in your home, most people will recognize that when you get a new Internet modem or even a cable installation, you often don't even need a technician to come to the house.
They ship you the modem, you plug it in, you're up and running. It saves them a lot of cost but you have to get rid of the headcount that goes with that otherwise there is no point.
There is also new generation AI tools coming in to help improve the efficiency of call centres.
Call centres are a big bucket of costs for all these phone companies. If they can find ways to deal with more concerns with a chat bought versus a live human interaction, that saves them money as well.
What Telus did I think was very prudent.
It doesn't portend any big distress at the company. It's a prudent way for them to manage their profitability and we are seeing it transpire in better projected growth in 2024.
>> Another audience question. Have you were is wondering of what do you think of Rogers more than 80% debt?
>> We tend to look at it in terms of leverage ratio more than percentage of capital structure. On that basis, it's certainly not very high.
Typically these companies are in the range of 3 1/2 times. They claim that over the long run they want to be lower than that, in the range of 2 1/2 to 3. So over five was getting pretty scary for some people during the Shaw Rogers merger.
They are now showing us that they are doing what they promised to do. There leverage came down very quickly after they acquired Shaw because they sold some assets.
They sold about 800 million shares of Cogeco shares in December. They had other asset sales that will be completed this year.
And then the significant cost savings from synergies on the Shaw deal. The dividend payout ratio is much lower than BC or Telus so they have more cash flow left over to pay down debt.
That 5.3 times is already down to 4.7 times as of the end of December. Their guidance is pointing to 4.2 times at the end of 2024. BCE and Telus are in the range of 3.63.7.
So we are getting very close to Rogers being on a more level playing field with the others and its balance sheet risk is really no higher. If you look at bond yields and corporate spreads, Rogers trades within a very narrow range compared to BCE and Telus. The credit markets and bond markets and telling us that there is no real problem here.
I would tend to agree. It was a temporary blip which they can fix pretty quickly.
>> An interesting breakdown of the numbers there at Rogers. You mentioned AI briefly.
Someone wants to know how artificial intelligence is going to affect these media companies.
I imagine that in many ways there are some we have not figured out yet.
>> The question is, are they going to be disrupted or dis-intermediated? I don't think so.
I don't see a real angle for that.
You may be able to send information and manage information over networks more effective using generative AI but someone still has to own the five are connected to your house and the wireless bedroom and the towers. That core infrastructure and the conductivity that goes with it, the telcos have to provide that. If anything, if generative AI fuels and even more digital economy moving forward than what we are already seeing, we are seeing significant growth in data usage on fixed and mobile networks every year, if generative AI powers and other incremental leap in that, more usage on these networks could be a talent for revenue growth. So I don't see any disruption. I see it as more opportunity which, to be honest, we are still trying to think through and I think a lot of people in the industry are trying to think it through. At a high level, a lot of people think that generative AI systems will allow you to replace repetitive labour tasks which in the telecom industry, there are a lot of them.
That goes back to the cost-reduction question. I think generative AI will be another tool in everybody's kits to manage their business more effectively.
>> Interesting stuff. TD Cowen covers BC, Rogers and Telus and for more information, link to the company covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
We are going to get back your questions for Vince Valentini on telecom 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.
We've got fresh numbers and on the number of homes changing hands in Canada last month. We are seeing a rebound in the market.
Is it turning a corner after years of weakness? Our Anthony Okolie joins us now with a new TD Economics report on what's been driving the recent gains and the longer-term outlook.
>> Across Canada, the number of homes and condos being sold sword versus one year ago, logging their biggest year-over-year gain since May 2021.
On a month over month basis, sales were up 3.7%. Additionally, the Canadian Real Estate Association says the increase reflects weakness last year which saw the worst start to almost any year in the past two decades. Now, January's gains for home sales, it leaves them to 7% below their pre-pandemic level. With sales accelerating faster than listings, the Canadian sales to new listings ratio for January tightened to nearly 59%, a level that leaves both buyers and sellers more balanced and then we have seen in previous years, particularly in the years preceding, after the pandemic where the ratio was as high as 70%.
A ratio of 65%, according to the Canadian Real Estate Association, indicates that markets are in seller's territory.
By province, sales were driven higher by three key markets: Ontario, BC and Québec, with month over month sales up about 4% in all of this territories.
The biggest drag was Saskatchewan, which was down about 5% month over month.
Now, TD Economics noted in their provincial housing forecast that in both Ontario and BC, the supply demand balances indicate that conditions are loose versus historical north.
TD Cowen expects quarterly sales growth to be the strongest in these two markets through their provincial projection horizon which will support prices going forward.
Meanwhile, when we do look at prices in January, the average home price in Canada was up .9% month over month. A modest gain, despite the deep drop that we saw in the province of Ontario which was down about 3.8% month over month. Some relatively strong gains in Alberta and parts of the Atlantic helped offset the overall weakness that we saw in Ontario.
Modest gains in the average price in a drop in the benchmark price in January may reflect sellers capitulating on their asking prices in markets that previously favoured buyers according to TD Economics.
TD Economics says that the last month's solid sales results likely supported or were likely supported by favourable weather and with January being a low volume sales month, some caution is necessary when interpreting these results.
That being said, TD Economics had expected that Canadian home sales would climb in the first quarter, supported by falling bond yields.
However, they believe that these home sales are… TD Economics points to Ontario as a real driver of the upside surprise in the home sales data where the release of pent-up demand has been shifting markets very quickly from favouring buyers to be more balanced.
>> Let's talk about 2024, longer-term, what are they thinking?
>> Looking ahead, I will start off with the month of February. TD Economics believes that the backup of key Canadian five year bond yield by roughly 50 basis points since early January. That code set some steam from demand this month.
TD Economics also believes that Canadian home sales should get a big hit from the Bank of Canada rate cuts, lower bond yield, that should support rising sales activity throughout the year. National home prices showed flag down in the second quarter before rising through 2024 and through 2025.
Though the pace of increase will be restrained by challenging a portability conditions in several markets.
>> Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, the platform designed for active traders available through TD Direct Investing.
This is the heat map function giving us a view of the market movers.
We will start with the TSX 60, screening by Price and volume. Some modest gains across the financials, whether it's the big banks are some of the life codes like Manulife. Shopify is up 2%. That's after a sizable polite yesterday on his earnings report, concerns about the forecast there.
And CAE, the flight simulator company, that's the notable stand out on the screen, down to the tune of a little more than 9%. South of the border we are seeing stability after yesterday's selloff.
Inflation came in hotter than expected south of the border and we saw a lot of asset classes move in a pretty dramatic fashion throughout the session. AMD is leading the chip stocks. It is up almost 3%. Nvidia and Intel are following along with that train as well.
Tesla has a modest rebound today, about 1%. You can get more information about TD advanced dashboard by visiting TD.com/Advanced Dashboard.
We are back with Vince Valentini. What does the Canadian media landscape look like in five years or in 10 years?
>> I will try to put on my futurist As opposed to my analyst Because we tend not to go that far with our predictions.
Clearly, we look at what's going on in the US, it probably tells us where Canada is heading. Canada has not been quite as dramatic as the US in terms of cord cutting and shaving. It's certainly happening where people are moving away from traditional linear cable towards just viewing video via streaming of some sort but it's been happening in a faster way in the US in part because they have more services, some people might not be aware of some services that don't exist in Canada, they sell their content to Bell or Corus or get another Canadian broadcaster.
We don't have HBO max, though shows are generally on crave or one of the other Bell media properties.
Our decline has been slower but we will probably catch up.
What we are seeing in the US is funny in a way. We are seeing a re-aggregation of the video universe on the Internet verses over cable wires. Everybody was all gung ho to disaggregated and not have to be forced to pay for channels you didn't want. Now people realize that if you buy every single streaming service individually, it's costing them the same or more.
We are seeing moves in the states to re-aggregate or bundled those platforms together, Disney together with Netflix and Paramount and those others. We saw a pretty big sports move where ESPN partnered with Paramount and Fox to put all of their sports channels together on a super app that will be supposedly launched this fall. So my answer, I would say we will see similar dynamics in Canada where most of the viewing will happen via streaming in the cable and phone companies will become re-aggregate her's of those channels and by Internet from us, we will give you an app that lets you organize those channels and search those channels effectively as opposed to you by you directly from us. By the way, I should point out that they cable, phone companies don't really care about that. They make the vast majority of their money over their broadband connection to your house or over wireless which is a separate service. The amount of money they made from video has been getting smaller and smaller every year as they have a smaller pool of customers in less revenue and more importantly, the profit margin on video is very low because they then have to go and pay for the content.
If you buy the content yourself, take it off their books, they're happy about that.
If you want a couple rough numbers, cable companies make up probably 95% of gross margin on Internet revenue. The only make about 40% gross margin on video revenue.
The seachange is seen big from a societal perspective.
They really don't impact the profitability of cable companies very much.
They may have more impact on broadcasters but we will probably need to see some consolidation in that industry if it's going to survive.
>> Fascinating stuff.
We started the conversation about telecom stocks in this country having a rough go recently. What do the investors need to be mindful of going forward? Does she need to be mindful of bond yields. You need to be vigilant in watching price competition.
That's probably the thing we spend the most time on these days is making sure that this stable competitor environment doesn't escalate and become worse. We are always watching the regulator in case they change their mind and do something that could be disruptive but I don't see anything on that front. I think if you keep your eye on those key things, look at the companies that are putting out the best growth, have the best sort of dividend payout ratios and focus on quality and you will do well.
>> I really enjoyed the conversation.
Great to have you on the program for the first time. Hope you come back.
>> Let's do it on Valentine's Day again next year.
>> Valentini on Valentine's Day, that's a date for February of next year.
Thanks to Vince Valentini, managing director for equity research at TD Cowen, a division of TD Securities. For more information on the companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show.
Jitania Kandhari from Morgan Stanley investment management will be our guest.
You can get a Headstart with your question. Just email moneytalklive@td.com.
That's all the time you have the show today. Thanks for watching. We will see you tomorrow.
[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 the outlook for the Canadian telcos.
TD Cowen's Vince Valentini joins us.
MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on January Canadian home sales numbers.
And in today's WebBroker education segment, Jason Hnatyk is going to take us through another type of conditional order you can you tell a platform, this time it will be a one triggers another order.
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 to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. We had a sizable step back on Bay Street and Wall Street yesterday on the heels of the hotter than expected inflation report. We are gaining back some of that ground today.
At 20,774, we are up 190 points, just shy of 1%. Baytex energy is giving up some of its earlier gains, not as firmly and the green is when I picked this one to show you. At four dollars and 26 cent her share, they are up about 1/4 of a percent.
Let's check in on Barrick Gold. This is an example of something to the downside.
Right now it 19 bucks and change, your down a little shy of a full percent.
At with the latest production numbers, I'll tell you more later in the show.
The S&P 500 fell off yesterday was sparked by the hotter than expected US inflation or, gold and bonds went higher, equities not lower. Your apples 13 points today, almost 1/4 of a percent. Let's check in on the tech heavy NASDAQ. 67 points to the upside, little shy of half a percent.
I want to check in on it. They had a blowout quarterly earnings report last week. Now they are announcing their first ever share buyback program.
That stock is up 11 1/2%. And that is your market update.
The big Canadian telecom stocks have underperformed the broader markets over the past year, but are there any signs of better days ahead in their latest earnings report? For more on this we are joined by Vince Valentini, managing director for equity research at TD Cowen, which is a division of TD Securities. Welcome.
>> Thanks very much. Thrilled to be here.
>> Telecom stocks are some of the biggest names on the TSX Composite Index.
People are well acquainted with them.
They are thought of as blue-chip study eddies. It hasn't been an easy go for them in the past year or so. What are we seeing in the telecom industry overall?
>> Let me give you my thoughts about the industry and we can drill down into some of the details of what's been happening in the past 12 months or more recently. I've been working in the industry for 30 years.
I think it's a good industry. First off, they saw what are pretty much nondiscretionary services.
Everybody needs their cell phone and Internet connection.
These companies provide the plumbing to make those services happen.
It is digital infrastructure that is never going away.
I like the longwave infrastructure characteristic of the industry. We have a good regulatory system in Canada. There are always ebbs and flows and criticism at times.
But for the most part we have a self-contained Canadian industry with strict foreign ownership rules. That provides a huge barrier to entry. We are never going to face competition from the likes of T Mobile or Vodafone, somebody who would have a much bigger scale to upset the apple cart for our bigger players.
These companies are not high-growth entities but they generate stable, slightly growing cash flow which they deployed to share buyback for dividends or sometimes pad their growth with acquisitions.
At that level, I think the industries will position for the longer term. Last but not least, it is not overly expensive, considering the type of infrastructure they have.
If we look at virtually every other class of infrastructure assets, whether it be pipelines or railways, green energy projects, a lot of times those trade in the range of 10 to 15 times and telcos trade at 7 to 8. At one point they were at nine so they've come down a little.
>> We often think of these as the blue chips and study eddies. If you look at the last year's performance of PCE or Telus or Rogers even against the TSX, the TSX hasn't gotten much over the past year but they are dramatically underperforming.
What are we seeing in these names? Was there anything in the results that are moving us forward now?
>> Let me start with last year. I hate to admit it as a fundamental analyst because we are digging into the weeds of what the companies are doing and who's doing better than others in managing their cost structure but at the end of the day, the problem with the stocks is bond yields.
They are cash generators and people look for the dividend yields. Almost like bond proxies in some extreme cases.
The biggest issue last year was clearly after many years of ultra low interest rates, we finally saw a rates rising in bond yields up quite significantly.
So magically after the peak in October from October till the end of December, you sell the telcos rally which was again largely bond yields coming back down. If you are constructive on the outlook for bond yields, which our teams at TD Economics are, that they will be lower a year from now, that I think the stocks will have a much better year. The last couple of days it's been rocky with the CPI number so there will always be volatility but in general, I think that headwind will turn into a tailwind and help most of the stocks in the sector.
In addition to that, there were a couple of fundamental factors last year that scared people a bit more than normal. We had some major transformational I call it M&A activity in the space with Rogers acquiring Shaw cable and the spinoff of Shaws wireless business had to go to Quebecor to get regulatory approval. That caused a lot of consternation in the investor community about what is this new world going to look like, are we going to have more competition than we are used to, are there going to be price wars, and Quebecor becoming a national wireless character for the first time. There was a lot of noise. Price wars hasn't turned out to be the case. There is certainly competition in the market but nothing I would call outsized.
But for a few months last year, there were concerns that things will get worse than they did. The last point I would say just regulatory which is somewhat linked to the Rogers-Shaw deal as well. It would the government and CRTC come out firing after that deal saying that we let the industry consolidate and now we are going to hammer you with more stringent regulations, potentially forcing you to open up access to your networks at supercheap rates for resellers to come in and various other sort of small regulatory files that were on the docket last year.
Again, a lot of concern from some analysts on Bay Street which really didn't materialize.
We saw a couple of regulatory outcomes late last year which were very favourable.
They showed steady as she goes. The government at a high level likes the industry.
No politician can admit that very easily but the industry invests very well in high quality networks. They want to incentivize investment.
So they're probably not going to do anything devastating to hurt them is my view and we saw evidence of that last year. To your point, bond yields rising cost concerns and some elevated regulatory concerns which have now pretty much fallen by the wayside is why things didn't do very well last year and why I'm constructive over the coming months.
>> Some big names for the audience. For full disclosure on the companies covered by TD Cowen, you can see the link to the TD Securities website at the end of the program.
We recently had a batch of earnings and that's important for the three months behind them and also for what they are saying about the months ahead. Did anything stand out that investors should be aware of?
>> We in the past two weeks have had BCE, Telus and Rogers all report their fourth-quarter results. This is an important quarter because at this time of year, they almost always give us their annual guidance for the following year.
So we got 2024 guidance from all three of those companies.
I would say a couple of wrinkles and things to be concerned about, but for the most part, the results were quite encouraging.
First point I would probably say is wireless market remains very strong.
Canada has gone through a couple of years of record levels of subscriber edition, in part driven by immigration and foreign students but also just people adopting more devices than they ever have in the past.
So we had 2023 the total industry wireless subscriber additions up around 1.75 million, which was right in line with 2022 which was an all-time record year. That's about 5% growth in volume for the industry.
We saw evidence of that in the fourth quarter results. We saw nothing in the guidance for many of the companies to suggest that the pace of growth is going to slow down dramatically.
Rogers has indicated 42 4 1/2% for 2024 is where they think it can settle in which factors in some of what the government is doing to limit foreign student visas, but it's not going to crater the industry growth, it just slows it down a little from a very high level. So the results were encouraging in terms of that underlying volume growth.
We also saw staple… Which goes back to what we were talking about earlier.
>> I remember so many acronyms from when I started to cover this industry.
>> Catch me on any of that.
It's a key metric of what are the wireless carriers getting from each customer per month. If that metric starts to decline, we are concerned that there is too much competition in volume growth is being offset by pricing and you don't get the revenue and profit growth. We saw a RPU relatively stable which refutes some of that noise I was talking about in the early part of last year where people thought we were going to have price wars and elevated competition after Quebecor took over freedom. No evidence of that in fourth quarter results either.
Now back to the ebb and flow that I mentioned, not that everything was perfect. Some providers are executing better than others and getting their share of that volume growth, managing the cost structure well which translates to the most important metric for analysts like myself which is… Growth which is a proxy for free cash flow. Free cash flow runs around. We tend to focus on the… As the main comparative metric. We saw guidance from Rogers for 6 to 9% growth in 2024.
Telus is at 5 1/2 to 7 and have an BCE that one and 1/2 to 4 1/2.
Rogers seemed to doing a little bit better. That is organic growth for all three of them.
Backed out of the Shaw contribution for one quarter.
Better execution from some verses others was notable in the numbers. And then last but not least, free cash flow and dividend quality which is very important to investors in this space, especially for BCE and Telus which are the two highest yielding names.
There, we saw pretty good performance from Telus. Free cash flow guidance in line with what we thought, seemingly supportive of them continuing what they been promising for some time which is to do at least 7% per year dividend growth whereas BCE slowed their dividend growth for the first time in 15 years. They have been doing 5%, they lowered it to three and their free cash flow growth guidance for 2024 was quite a bit below what most people were expecting and they are expecting a decline of between three and 11%.
Not everything was perfect in the results.
There were a couple of weak spots depending on which company you look at. At a high level in market growth, the market sort of price dynamics were clearly still trending in that direction.
>> TD Cowen covers BCE, Rogers, the Quebecor and Telus. For full disclosure on companies covered by TD Cowen will be found at the end of the video. Great start the program. Great stuff about the telecom industry. We are going to get your questions about telecom and media companies for Vince Valentini in 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.
Uber Technologies is announcing its first ever share buyback program, saying it's going to repurchase $7 billion worth of its stock. This news comes on the heels of over reporting stronger-than-expected quarterly results last week in its first ever annual profit as a publicly traded company.
You can see the stock up right now to the tune of a little more than 11%.
Also want to check in on shares of rival Lyft in the spotlight today. The company stored some 60, 60%, in after hours yesterday. The company is forecasting a 5% expansion of adjusted earnings margin. The company then had to issue a clarification, that metric now expected to expand 0.5%, not 5% as was erroneously recorded in the first release.
Despite that, the forecast is still pleasing the street. At $15.96, the stock is up 31%. Barrick Gold has been one of the most actively traded names on the TSX Composite Index today. Investors reacting to the minors 2024 production guidance.
In a note to clients, TD Cowen says Barrick's cash cost guidance is coming in higher-than-expected. That is likely due to several factors including oil cost and labour prices. Right now Barrick's at 1904 per share, down three quarters of a percent.
Big selloff on the S&P 500 yesterday.
It's… Up 11 points, also clawing back some of its losses of yesterday, up about 1/4 of a percent.
We are back with Vince Valentini, taking your questions about telecom and media stocks. Let's get to them.
Here's another one in the space. What is going on with Corus Entertainment? I think we looked at it when you're chart of the stock, it's been under pressure to say the least.
>> It certainly has. Actually, I just look at it before I came over to the studio and on a year-to-date basis, is actually the best performing stock in my sector. It's up 24% but that's a bounce off of a very low level. The stock has been weak for a number of years.
Very similar to what I mentioned about the telcos having that stable infrastructure and somewhat boring but consistent cash flow growth, course unfortunately finds itself in a much more volatile industry, which has faced some pretty severe headwinds over the past 15 years now with things everybody knows, Google and Facebook coming in and taking the lion share of the advertising market away from legacy broadcasters and linear media and the rise of Netflix and other streaming services that are gaining way with their audiences.
Despite those things, the company was still holding up, being able to do sort of reasonably good quality content that it was still capturing eyeballs, viewers, and they were doing a good job pivoting to get a lot of their services onto digital platforms, such as their stack TV offering were most of their key channels are offered in the digital streaming format.
The rails kind of came off just before the start of 2023 when we had an advertising recession kicked in and they still haven't really recovered from that.
Advertising tends to be a very leading indicator in terms of recession and the overall economy where even though we may or may not be in a recession in general, a lot of businesses thought we were heading into one so they immediately cut back on their media budgets and advertising spend.
That started to her quarters early in last year and then they got hit hard by the strikes in Hollywood a writers and actors so they ran out of content and had low viewership numbers during the critical fall..
Some of those things should recover. They are starting to get their new TV shows back. As of February, some of them are starting this week, the content is back on their main channels such as global TV, highball should come back, advertising has not quite bounced back. Typically in every recession we have tracked, there will be a bounce back at some point.
The timing is unclear. The last one I would make is what else could happen? I think that the stock could still have some legs to recover. It is not for the faint of heart. It is speculative, more speculative name and higher risk than the telcos that we covered.
But in terms of the upside scenario, I think it has to come from consolidation in the industry and regulatory reform. We do have a new broadcasting act in Canada.
There are some significant changes this year the CRTC is considering in terms of how legacy linear broadcasting companies have to create Canadian content and how much money they have to spend on it. If they get material relief on that front and their cost structure comes down, the cash flow will improve and they will be able to pay down more debt and I think the equity value could follow higher. And on the biggest thing would be consolidation. If the, if Canada wants a sustainable, strong broadcasting industry in the face of competition from global giants like Netflix and Google, then they really have to let larger, well-capitalized companies own more assets because there are some pretty strict rules on that. If those will start to break down in coming years, course could have an opportunity to sell some assets or even its whole company. I don't think all is lost but it's certainly a more challenging environment than most of the telco names we cover.
>> That's a nice lead-in for the next audience question.
Wondering if we are going to see more M&A activity in the telecom sector and how that could impact the industry.
He said there are barriers right now to M&A in the space.
>> It could take years of legislative change and a strong stomach from politicians to break down those rules because you're going to lose head offices and jobs.
I think certainly for the remainder of my career being a telecom analyst, I don't think we will ever see… Go away which means we won't see mega deals like Verizon coming into by Telus or BC. That leaves us with sort of made in Canada solution. Not much left to do you on that front. Rogers has already acquired Shaw. That was the biggest deal out there that could've happened. BCE bought Manitoba tell which was a regional consolidation. So we are left with BCE and Telus with their halves of the company that they cover. Very difficult to see regulators to allow those two companies to merge. Rogers could by Quebecor but there does not seem to be any interest from either party to do a deal.
Cogeco was already tried by Rogers a couple of years ago.
A rich takeover offer that the family that owns Cogeco rejected so it seems like it's off the table as well.
It may not be the exciting answer but I don't think there's too much high-level consolidation left to go. We are still just living with the aftermath of the big deals that happened last year. What is Quebecor going to do with freedom as they continue to improve the network, continue to invest more in marketing, get more scale, they are gradually increasing their market share. While they try to step it up and become more disruptive is probably the biggest question I get from investors in the space. Then secondarily, what is Rogers doing with their shop platform?
They are getting tremendous cost synergies out of it, they have better bundling capability across the country than they ever have but to put wireless with Internet in Alberta Enbridge Columbia for the first time and that is a better structured platform for future services in our NDN product development when it comes to 5G, not human services but machine services, the Internet of things, connected drones and vehicles, Rogers through that consolidation has a better platform to invest in that. There are interesting things that will happen in the aftermath of what we have already seen but future M&A will be pretty limited.
>> Interesting stuff.
For more information on the companies covered by TD Cowen, a division of TD Securities, can be found in a link at the end of the video.
As always, make sure you do your own research before making any investment decisions.
we will get back your questions for Vince Valentini 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 our education segments this week, we've been looking at the different order types available on WebBroker. Today, we are going to look at one triggers and other orders. We are joined by Jason Natyk, Senior client education instructor with TD Direct Investing. Great to see you.
Let's start by reminding us with why an investor would want to use a conditional order like this one.
>> That's a great question. Conditional orders are good for a number of reasons.
First of all, they are great to help us automate the order entry process. We can set it up kind of like a chain reaction of events so we don't always need to be at her computer and its way to execute on what we think is important in our account.
This is the key thing for me, it allows clients to execute on their investing plan, they can capture profits, mitigate some risk by limiting losses may be through the use of a stop order and I can also help us keep maybe a little bit of a motion out of our trading.
Let's jump into WebBroker and we can take a look at how they can be accomplished in the system.
First of all, we have a list of all of our conditional orders that are available in WebBroker.
This is the strategies order tab we are looking at a buy sell ticket. Take note, at the bottom of the screen, there is a video if you would like to learn more after these demos. Go on WebBroker and check it out to learn more. We are going to focus on the one triggers other order.
It's too orders that we are placing together.
The first order that we are going to be play saying, once it is placed, it will activate the second order. It can be used for common scenarios. At one, maybe we want to capture some profits. We place an order to buy a stock, it goes up, we might already have an exit strategy primed and ready to go to know that if it goes up to a certain price it will be executed.
Another common strategy, and investors looking to move and reallocate funds from one position to another. When that first order triggers as a cell, they can investing in for rebalancing purposes. I bought a charter behind the screen to visualize that first example of setting up profit targets.
There is a green light on my chart would represent the first order that would then get filled. It would trigger hours second order to come into play.
Let's draw secondary line on the chart.
I'm going to draw that now add a healthy profitable target for everybody.
Just talking through the order of events, this is the first order in green.
Once it fails, it will open up our second limit order if the stock does what we wanted to do.
This is to have an order in place to capture the prophets to keep it for ourselves as opposed to giving it back.
>> That we understand why to use order, let's talk about the howl. How would you make this sort of order on WebBroker?
>> That's a key detail. Let's put the theory into practice.
That's an easy part to this.
I will walk you through the order ticket.
We can get into our order strategies by either choosing the trading tab at the top of the page or like to use the buy sell button that is take care of the top the screen. I going to buy sell and then we have a series of tabs running across the top, to strategies. We are going to click on one triggers another.
We are going to put in our symbol, we were using SPY for our chart to list a consistent and use that.
Let's put order in at the market price.
Once this order happens to fill, we know it's a market order so it will sell right away, all we are going to do to set our secondary order from this example to capture profits, we are going to click on the bottom area, but our symbol that we used in the first half of our trade and then we can go ahead and sell the same number or quantity. We are going to keep the set a limit for this particular case.
Maybe we want a profit target of 15 bucks which I think we would all be happy with taking away that kind of profit. One thing to know is that they are time in force. It needs to be set as the same across different orders.
If you want to keep these orders on into further time periods, it's worth making sure we can choose between the good till a specific date or good till cancelled. Good till cancelled will keep orders for Canadian stocks open for 90 days and 180 days for US listed stocks. So you have those strategies in place to help you execute on your trade plan.
>> Thanks for that.
>> My pleasure.
>> Jason Natyk, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We are back with Vince Valentini, taking your questions about telecom and media stocks. Let's get to the next one.
How are chalices big labour cuts made in 2023 going to impact the results for this year in 2024?
>> Good question.
We saw that already. For the most part, revenue guidance for 2024 is in a range of 2 to 4%. Implied in that is margin expansion which comes largely from the cost restructuring we will call it that they announced last year which was a larger than normal program for them.
They are not alone, we saw a Rogers taking down a significant headcount as part of their shod deal. Last week we saw BCE and answer layoff of 4800 employees or 9% of their workforce.
Chalices may be a bit ahead of the curve of BCE of doing what is normal for the industry. It can come in sort of lumps at times if they see there is an opportunity to do it. These are heavily regulated, heavily unionized industries so they have to pick their times when they think they can do a corporate cost-cutting effectively.
But for the most part over time, what you see is new technology helping these companies operate with a lower cost structure. Things like self-serve in your home, most people will recognize that when you get a new Internet modem or even a cable installation, you often don't even need a technician to come to the house.
They ship you the modem, you plug it in, you're up and running. It saves them a lot of cost but you have to get rid of the headcount that goes with that otherwise there is no point.
There is also new generation AI tools coming in to help improve the efficiency of call centres.
Call centres are a big bucket of costs for all these phone companies. If they can find ways to deal with more concerns with a chat bought versus a live human interaction, that saves them money as well.
What Telus did I think was very prudent.
It doesn't portend any big distress at the company. It's a prudent way for them to manage their profitability and we are seeing it transpire in better projected growth in 2024.
>> Another audience question. Have you were is wondering of what do you think of Rogers more than 80% debt?
>> We tend to look at it in terms of leverage ratio more than percentage of capital structure. On that basis, it's certainly not very high.
Typically these companies are in the range of 3 1/2 times. They claim that over the long run they want to be lower than that, in the range of 2 1/2 to 3. So over five was getting pretty scary for some people during the Shaw Rogers merger.
They are now showing us that they are doing what they promised to do. There leverage came down very quickly after they acquired Shaw because they sold some assets.
They sold about 800 million shares of Cogeco shares in December. They had other asset sales that will be completed this year.
And then the significant cost savings from synergies on the Shaw deal. The dividend payout ratio is much lower than BC or Telus so they have more cash flow left over to pay down debt.
That 5.3 times is already down to 4.7 times as of the end of December. Their guidance is pointing to 4.2 times at the end of 2024. BCE and Telus are in the range of 3.63.7.
So we are getting very close to Rogers being on a more level playing field with the others and its balance sheet risk is really no higher. If you look at bond yields and corporate spreads, Rogers trades within a very narrow range compared to BCE and Telus. The credit markets and bond markets and telling us that there is no real problem here.
I would tend to agree. It was a temporary blip which they can fix pretty quickly.
>> An interesting breakdown of the numbers there at Rogers. You mentioned AI briefly.
Someone wants to know how artificial intelligence is going to affect these media companies.
I imagine that in many ways there are some we have not figured out yet.
>> The question is, are they going to be disrupted or dis-intermediated? I don't think so.
I don't see a real angle for that.
You may be able to send information and manage information over networks more effective using generative AI but someone still has to own the five are connected to your house and the wireless bedroom and the towers. That core infrastructure and the conductivity that goes with it, the telcos have to provide that. If anything, if generative AI fuels and even more digital economy moving forward than what we are already seeing, we are seeing significant growth in data usage on fixed and mobile networks every year, if generative AI powers and other incremental leap in that, more usage on these networks could be a talent for revenue growth. So I don't see any disruption. I see it as more opportunity which, to be honest, we are still trying to think through and I think a lot of people in the industry are trying to think it through. At a high level, a lot of people think that generative AI systems will allow you to replace repetitive labour tasks which in the telecom industry, there are a lot of them.
That goes back to the cost-reduction question. I think generative AI will be another tool in everybody's kits to manage their business more effectively.
>> Interesting stuff. TD Cowen covers BC, Rogers and Telus and for more information, link to the company covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
We are going to get back your questions for Vince Valentini on telecom 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.
We've got fresh numbers and on the number of homes changing hands in Canada last month. We are seeing a rebound in the market.
Is it turning a corner after years of weakness? Our Anthony Okolie joins us now with a new TD Economics report on what's been driving the recent gains and the longer-term outlook.
>> Across Canada, the number of homes and condos being sold sword versus one year ago, logging their biggest year-over-year gain since May 2021.
On a month over month basis, sales were up 3.7%. Additionally, the Canadian Real Estate Association says the increase reflects weakness last year which saw the worst start to almost any year in the past two decades. Now, January's gains for home sales, it leaves them to 7% below their pre-pandemic level. With sales accelerating faster than listings, the Canadian sales to new listings ratio for January tightened to nearly 59%, a level that leaves both buyers and sellers more balanced and then we have seen in previous years, particularly in the years preceding, after the pandemic where the ratio was as high as 70%.
A ratio of 65%, according to the Canadian Real Estate Association, indicates that markets are in seller's territory.
By province, sales were driven higher by three key markets: Ontario, BC and Québec, with month over month sales up about 4% in all of this territories.
The biggest drag was Saskatchewan, which was down about 5% month over month.
Now, TD Economics noted in their provincial housing forecast that in both Ontario and BC, the supply demand balances indicate that conditions are loose versus historical north.
TD Cowen expects quarterly sales growth to be the strongest in these two markets through their provincial projection horizon which will support prices going forward.
Meanwhile, when we do look at prices in January, the average home price in Canada was up .9% month over month. A modest gain, despite the deep drop that we saw in the province of Ontario which was down about 3.8% month over month. Some relatively strong gains in Alberta and parts of the Atlantic helped offset the overall weakness that we saw in Ontario.
Modest gains in the average price in a drop in the benchmark price in January may reflect sellers capitulating on their asking prices in markets that previously favoured buyers according to TD Economics.
TD Economics says that the last month's solid sales results likely supported or were likely supported by favourable weather and with January being a low volume sales month, some caution is necessary when interpreting these results.
That being said, TD Economics had expected that Canadian home sales would climb in the first quarter, supported by falling bond yields.
However, they believe that these home sales are… TD Economics points to Ontario as a real driver of the upside surprise in the home sales data where the release of pent-up demand has been shifting markets very quickly from favouring buyers to be more balanced.
>> Let's talk about 2024, longer-term, what are they thinking?
>> Looking ahead, I will start off with the month of February. TD Economics believes that the backup of key Canadian five year bond yield by roughly 50 basis points since early January. That code set some steam from demand this month.
TD Economics also believes that Canadian home sales should get a big hit from the Bank of Canada rate cuts, lower bond yield, that should support rising sales activity throughout the year. National home prices showed flag down in the second quarter before rising through 2024 and through 2025.
Though the pace of increase will be restrained by challenging a portability conditions in several markets.
>> Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, the platform designed for active traders available through TD Direct Investing.
This is the heat map function giving us a view of the market movers.
We will start with the TSX 60, screening by Price and volume. Some modest gains across the financials, whether it's the big banks are some of the life codes like Manulife. Shopify is up 2%. That's after a sizable polite yesterday on his earnings report, concerns about the forecast there.
And CAE, the flight simulator company, that's the notable stand out on the screen, down to the tune of a little more than 9%. South of the border we are seeing stability after yesterday's selloff.
Inflation came in hotter than expected south of the border and we saw a lot of asset classes move in a pretty dramatic fashion throughout the session. AMD is leading the chip stocks. It is up almost 3%. Nvidia and Intel are following along with that train as well.
Tesla has a modest rebound today, about 1%. You can get more information about TD advanced dashboard by visiting TD.com/Advanced Dashboard.
We are back with Vince Valentini. What does the Canadian media landscape look like in five years or in 10 years?
>> I will try to put on my futurist As opposed to my analyst Because we tend not to go that far with our predictions.
Clearly, we look at what's going on in the US, it probably tells us where Canada is heading. Canada has not been quite as dramatic as the US in terms of cord cutting and shaving. It's certainly happening where people are moving away from traditional linear cable towards just viewing video via streaming of some sort but it's been happening in a faster way in the US in part because they have more services, some people might not be aware of some services that don't exist in Canada, they sell their content to Bell or Corus or get another Canadian broadcaster.
We don't have HBO max, though shows are generally on crave or one of the other Bell media properties.
Our decline has been slower but we will probably catch up.
What we are seeing in the US is funny in a way. We are seeing a re-aggregation of the video universe on the Internet verses over cable wires. Everybody was all gung ho to disaggregated and not have to be forced to pay for channels you didn't want. Now people realize that if you buy every single streaming service individually, it's costing them the same or more.
We are seeing moves in the states to re-aggregate or bundled those platforms together, Disney together with Netflix and Paramount and those others. We saw a pretty big sports move where ESPN partnered with Paramount and Fox to put all of their sports channels together on a super app that will be supposedly launched this fall. So my answer, I would say we will see similar dynamics in Canada where most of the viewing will happen via streaming in the cable and phone companies will become re-aggregate her's of those channels and by Internet from us, we will give you an app that lets you organize those channels and search those channels effectively as opposed to you by you directly from us. By the way, I should point out that they cable, phone companies don't really care about that. They make the vast majority of their money over their broadband connection to your house or over wireless which is a separate service. The amount of money they made from video has been getting smaller and smaller every year as they have a smaller pool of customers in less revenue and more importantly, the profit margin on video is very low because they then have to go and pay for the content.
If you buy the content yourself, take it off their books, they're happy about that.
If you want a couple rough numbers, cable companies make up probably 95% of gross margin on Internet revenue. The only make about 40% gross margin on video revenue.
The seachange is seen big from a societal perspective.
They really don't impact the profitability of cable companies very much.
They may have more impact on broadcasters but we will probably need to see some consolidation in that industry if it's going to survive.
>> Fascinating stuff.
We started the conversation about telecom stocks in this country having a rough go recently. What do the investors need to be mindful of going forward? Does she need to be mindful of bond yields. You need to be vigilant in watching price competition.
That's probably the thing we spend the most time on these days is making sure that this stable competitor environment doesn't escalate and become worse. We are always watching the regulator in case they change their mind and do something that could be disruptive but I don't see anything on that front. I think if you keep your eye on those key things, look at the companies that are putting out the best growth, have the best sort of dividend payout ratios and focus on quality and you will do well.
>> I really enjoyed the conversation.
Great to have you on the program for the first time. Hope you come back.
>> Let's do it on Valentine's Day again next year.
>> Valentini on Valentine's Day, that's a date for February of next year.
Thanks to Vince Valentini, managing director for equity research at TD Cowen, a division of TD Securities. For more information on the companies covered by TD Cowen, a division of TD Securities, can be found at the end of the video.
As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show.
Jitania Kandhari from Morgan Stanley investment management will be our guest.
You can get a Headstart with your question. Just email moneytalklive@td.com.
That's all the time you have the show today. Thanks for watching. We will see you tomorrow.
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