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Canada's Big Banks: Are They Buys in This Market Rally? – The Motley Fool Canada

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The markets are doing their best to bounce back from the steepest bear market in history. Last week, the S&P/TSX Composite Index eked out a 0.42% gain, and it is now up 12% since the start of April. Increasingly, the market rally looks sustainable, and investors are looking to once again buy into the markets. Canada’s big banks should be at the top of your list. 

The market is rallying on the backs of only a few sectors — tech in particular. While technology stocks are hitting 52-week highs, financials continue to struggle. The S&P/TSX Financial Index is only up 1.2% in April, far below the Index average. 

Year to date, financials are trailing the index by approximately 10 percentage points. Canada’s big banks are usually strong performers. This is not so in 2020, as all the Big Five are trailing the Index. 

Since they have yet to find their footing, it remains a good time to pick up Canada’s big banks at discounted valuations. Here are two of the cheapest. 

Canada’s worst-performing big bank 

Let’s start with the worst performing of the Big Five, Bank of Montreal (TSX:BMO)(NYSE:BMO). In 2020, Bank of Montreal stock is down by 32.91%, far outpacing its peers. 

Why the underperformance? On the surface, the bank is one of the most exposed to the Canadian oil and gas industry. With oil prices trading at prices not seen in decades, the entire industry is at risk of insolvency. This means that banks with high exposure could potentially experience high loan losses. 

Unfortunately, Canada’s big banks don’t report quarterly results until the end of May. As such, investors won’t get clarity on the magnitude of impact until such time. That being said, I believe Bank of Montreal is trading at levels that are tough to ignore.

Let’s put BMO’s exposure to oil and gas into perspective. First, oil and gas only account for approximately 2.5% of outstanding loans. Second, when you take into account the undrawn credit facilities, Bank of Montreal is actually one of the least exposed to the industry. 

The bank is trading at only 7.01 times earnings, 1.01 times book value, and at a 37.2% discount to historical averages. There is none cheaper among Canada’s big banks. 

A top performer

Speaking of cheap, another Big Five bank that is currently trading at a big discount to historical averages is Toronto-Dominion Bank (TSX:TD)(NYSE:TD). As of writing, TD Bank is trading at a 32.3% discount to historical averages. In fact, it has only been this cheap once before, and that was during the Financial Crisis. 

Over the past decade, TD Bank has been the best-performing Canadian big bank. In 2020, its 24.66% loss is second only to Royal Bank of Canada. Why does it consistently outperform? It has the highest exposure to the U.S. markets. Since the U.S. has far outpaced the Canadian economy, it is therefore not surprising that TD Bank has outperformed the Big Five. 

Across the board, earnings growth is expected to turn negative in 2020. In 2021, TD Bank is expected to post earnings-growth rates of 5.71%. Although below the company’s five-year double-digit average, it is the second-highest growth rate among Canada’s big banks. 

Finally, TD Bank’s dividend is among the safest in the world. At 43%, it has the lowest payout ratio of its peers and has averaged higher dividend growth. Earlier this year, the company raised the quarterly dividend by 6.76%. 

As the U.S. looks to re-open, TD Bank will surely be among the first of Canada’s big banks to rebound in a broader market rally. 

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Fool contributor Mat Litalien owns shares of BANK OF MONTREAL and TORONTO-DOMINION BANK.

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

The Canadian Press. All rights reserved.

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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