UQAM CFA ResearchChallenge2014

5/26/2018 UQAM CFA ResearchChallenge2014

1/22

CFA Institute Research Challenge

hosted byLocal Challenge Montreal CFA Society

Universit du Qubec Montral


2/22

Universit du Qubec Montral Student Research

This report is published for educational purposes only by

students competing in the CFA Institute Research Challenge.

Date: 22/01/2014 Current Price: 25.43$ Recommendation: BUY

Ticker: QBR.B-CA (FactSet) Target price: 33.57$

Highlights

We issue a buy recommendation with a target price of 33.57$ with

a 26.58% upside potential.we believe QBR's is on his way to become a large

player in the telecom industry.

Main price growth drivers: (1) high subscribers growth; (2) highdiscount compared to peers; (3) sustainable CAPEX level (depending on

spectrum acquisition bid); (4) Stable debt/equity level; (5) sustainable low

churn rate; (6) lower competition intensity

Possible National scale exposure in the upcoming years. We like

the fact that Wind Mobile is sitting out of the Auction and that QBR's is

negotiating with Mobilicity for possibly operating licenses outside of

Qubec.

Main risks issues are: rise in interest rates, global macro conditions,

arrival of new competition in the industry, political risk (higher taxes),

industry demand and supply also have to be taken into consideration.

Change in forecast level of

WACC

Change in forecast level of Terminal FCF Growth

0.00% 0.50% 1.00% 1.50% 2.00%

7.00% 45.61 50.06 55.25 61.39 68.76

7.50% 40.49 44.27 48.63 53.71 59.72

8.00% 36.03 39.26 42.96 47.23 52.218.22% 34.24 37.27 40.72 44.69 49.29

9.00% 28.61 31.04 33.78 36.89 40.44

9.50% 25.50 27.63 30.02 32.70 35.74

10.00% 22.70 24.59 26.68 29.02 31.64

Valuation DCF Multipliers

Estimated price 40.73 26.4

Weights 50% 50%

Target Price 33.57$

Source: Team estimates

Quebecor Inc.

52 Week Range C$18.85-

27.40

Average Daily Vol

(3Mo)

176,680.1

Market Value (M) 3,334

Shares Out (M) 123.5

Institutional Holding 67.9%

Net debt/EBITDA

2014E

3.27

EV/EBITDA 2013E 6.2

EV/EBITDA 2014E 5.81

Total Debt/EV 61.41%

ROE 2014E 11.48%

Source: Yahoo-Finance, Factset

[Communications ServicesIndustry, Technology Sector]

Quebecor Inc.

10

15

20

25

30

35

Quebecor monthly stock prices

Closing Price

Current Price

Target Price

33.57$

25.43$

26.58% upside


3/22

Business DescriptionQuebecor Inc is a holding corporation with a 75.4% interest in Quebecor Media Inc.

The remaining 24.6% interest in Quebecor Media Inc is held by the Caisse de dpt et

placement du Qubec. Quebecor is one of Canadas largest telecommunications

companies, specializing in telecommunications services, news media and

broadcasting. Their head office is in Montreal and the company operates mainly inQuebec and Ontario. In 2013, the Company employed more than 16k persons and

had more than 370,392 customers for its analog television service.

QBR is a leader in the Canadian telecommunications industry. This segment accounts

for more than 88% of the companys total consolidated EBITDA. In addition, during

the first quarter of 2013, mobile telephony passed the EBITDA break-even point for

the first time. In previous years, QBR has been able to gain market share by

strengthening the bundled offering and by improving content (e.g., TVA Sports). The

company was also ranked as Quebecs best retail telecom for the third year,

reflecting the companys commitment to providing the best possible experience of

customer service.

In terms of market share, Videotron have been revealed as the true leaders of

telecommunications in Quebec. They cover 83% of basic subscriptions to TV cable, a

total of 1,839k subscribers. As for the internet, they have 77% penetration with

1,408k clients. Also, the residential line, which use to be Bell dominated, is now 70%

in favor of Videotron in just 8 years. Finally, the mobile sector is the only trailing one,

with 478k subscribers as of September 30, 2013.

The current strategy of the company can be divided into the following sections:News Media segment.This segment has been generally declining over the past few years due to consolidation

in the retail industry. For example, in 2008 and 2013, there were major write-offs concerning Quebecor World

and Quebecor News Media, which were mainly operating in the printed segments. In response to these

changes, Quebecor Inc is now focusing on developing their internet presence through branded websitescombined with a shift in marketing strategy toward other media.Telecommunications segment. Capital investment to upgrade, expand and maintain its network to support

growth in its customer base and demands for increased bandwidth capacity, and mobility telephony

infrastructure upgrades. Concerning the wireless data service, the challenge is to respond to the increasing

volume demand.Broadcasting segment. A shift towards more control of content and timing for users. The current strategy

consists of adjusting the current platform in order to respond to new consumer needs (mobile broadcasting,

radio for mobile, video on demand). A good example would be the addition of TVA Sports from a multi-year

sub-licensing agreement with Rogers. QBR will become the official French-language broadcaster of the NHL in

Canada.Shareholder structure. During 2012, there was a major change in the shareholder structure of QBR. Initiated

by the CDP transaction, the timeline of potential full ownership of QBR Media by Quebecor (2019E) is underway and fully financed by convertible debentures

1. Market Share price has risen more than 50% since the

initial stage of the share repurchase agreement. Pierre Karl Pladeau owns directly and indirectly all of

Quebecor's class A shares. Technically, Pierre Karl Pladeau owns 27.1% of the Quebecor Inc shares and 64.7%

of the voting rights (as of September 4, 2013) since the class A shares have 10 votes per share. Thus, this

concentration is creating a controlling interest over the management team and the business. Institutional

holdings represent 69.20% (top 10: 56.57%) of the entire market value. Insiders represent 0.50%. The

remaining balance is held by domestic and foreign investors.

Management. Currently, the management of Quebecor consists of five persons. The new CEO is Robert

Depatie, who has been in charge of the company since March, 2013. Depatie holds a degree in marketing from

the University of Western Ontario. He is a former executive of one of the subsidiaries of the company, and has

over 11 years experience as CEO of Videotron.

1500M$ convertible debentures, 6 years, 4.125% per year, right to convert prior to maturity(cash or share).

88%

7%3% 2%

Figure 2: EBITDA

breakdown LTM

Telecom

News Media

Broadcasting

Others

Source: FactSet

62%20%

11%

7%

Figure 1: Revenue

Breakdown LTM

Telecom

News Media

Broadcasting

Others

Source: Factset


4/22

Industry Overview and Competitive Positioning

Porters 5 forces analysis (Appendix 10)High barriers to entry. The Canadian government has always

made sure that large local companies had most of the control inTelecommunications with quite strict laws. This gave a big edge

to the big three and helped them keep costs high for smaller

competition. Before the newly added cap, local companies paid

more for roaming fees than the American companies borrowing

in that same spectrum. This wasnt such a big problem for

Quebecor since they are mainly based in Quebec. Furthermore,

until a short while ago, Quebecor wasnt expected to tryto reach

a bigger market in other provinces, simply because they are well established in the province and they offer a

wide variety of content for the French-speaking population. As of 2011, 78.1% of the population had French

has their native language, a little over 6 million people according to statistics Canada. The company offers a

wide variety of French content. TV Shows like La voix or Occupation Double generate a lot of views

(averaging 2.5m and 1m respectively). Theres no doubt that bundling services need to be offered to enter themarket and attract customers, but its difficult when the appropriate content is not available.

Bargain power of suppliers. not very high for telecom devices, because there is a wide variety of phones

offered by various big companies. Anyhow, the bargain power of the government regarding the spectrum

offering is relatively high.

Bargain power of buyers. low, since there are only a couple big companies in the market, they are able to

keep the prices high. BUT with the new laws introduced within the latest Speech of Throne, there are

modifications that make it harder for them to have an oligopoly.

Oligopoly Competition. In a highly competitive market, our main competitors are Bell Media Inc, Rogers

Communications Inc and Telus Communications Inc. The biggest competition for Quebecor lies in the CanadianTelecommunications market. According to the CRTC report of the telecoms market in 2012, the price level of

the communications market has increased by 2% compared to an inflation increase of 1.5%.

Threat of substitute. In telecommunications, the biggest substitutes are Skype and Viber for long distance

calls. Theres no doubt that voice-over-IP could also be another alternative. On the other hand, landlines are

slowly being replaced by cell phones. There has been a reduction of 2.9% in landlines from 2010 to 2011 as

opposed to an increase of 1.5% in the use of the mobile phone as a landline. Substituting for the written media

sector is internet media. No more paper newspapers but tablet versions. The telecommunications sub-sector is

going from wired phones to wireless phones. Skype and viber are replacing, although not perfectly, long-

distance calls. TV substitutesApple TV, Netflix, internet will cause the TV sub-sector to continue to decrease.

A very important threat of substitute for Quebecor is Bell Fibe. Bell Fibe is a new product offered by Bell which

has a wireless connection for the Television. Fibe is the only service offering end-to-end connection via opticfiber directly to your home. This gives a better signal all through the house and can connect the TVs with all

the other wireless devices in a house. We thought the final threat would be coming from WIND buying

Mobilicity, but rumors are floating that Videotron could be the one picking up the Toronto-based company

and their 175,000 subscribers. Ever since investors decided not to help WIND bid for the 700 MHz spectrum,

we estimated that Videotron could extend their service past Quebec with this acquisition. They would become

the new fourth operator that the government is desperately looking for.

Figure 3: Peers basics statistics for

2013EEBITDA margin (%) NI margin (%)

QBR's 33.13% -5.52%

RCI 39.23% 11.56%

BCE 39.60% 10.82%

T 35.46% 11.53%


5/22

Industry Cycle. The communications industry increased by 2.3% as of

2012, with a total revenue of $60.7G. The broadcasting industry was

up 1.4% in 2012 at $16.8G, while the telecommunications industry was

up 2.7% to $43.9G. Overall, the wireless industry showed a growth in

revenue of 6.5% rising to $20.4G (The highest growth came from

roaming cost). If we look further into the telecoms industry, we realize

that the wireless Roaming costhad a CAGR 2008-2012 of 23.5%whilethe stock wirelessdecreased in 2012 by -2.40%. We should also take

into consideration that roaming cost has been capped to $50 per

subscriber, which will affect future wireless growth (the Roaming cost

represents only 7.7% of the total industry revenue). The Internet

segment was up 5.2% to $12.2G while the Telephony segment was

down -6% to $11.3G. For further information regarding industry data,

please refer to Appendix 9.

Competitive Advantage. There are many aspects that can explain

QBR's edge compared to their peers. One of them is the centralized

customer service they offer. Quebecor, like many other companies,

offer multiple services, but unlike the others, they offer eight weeks ofextensive training for all new employees, so that they are able to

answer all questions concerning all the products. This results in

greatly improved customer service. 99% of the time, when a

Quebecor customer calls customer service, his call is answered within

30 seconds (according to QBR's CFO). ''Not surprisingly, Videotronwas ranked the most respected telecommunications provider in

Qubec for the seventh consecutive year by Les Affaires magazine,

based on a Lger Marketing survey''2. Also, this customer will not be

transferred to different departments, but will have all of his problems

directly solved through this one person who responds. Another of

Quebecors strong competitive advantages consists of their bundling

effect. Over the years they have been gaining a lot of three- andfour-services customers (high margin ) and losing one- and two-

services customers (low margin customers). Those customers result

in a high profit margin as opposed to the 1 & 2 services bundling,

which now represent less than 20% of their sales. Quebecor has also

put a lot of effort into diversifying and upgrading their TV content

over the years. They now own new specialized channels such as TVA

Sportsand their own movie distribution program (Illico illimit). TVA

is the single most-watched TV channel in the province of Qubec with

a share of viewers up to 32% . This gives them leverage to produce strong and good content on other

platforms, for example, by providing extra material for Occupation Double or Loft Story on the internet for

those who are also using the Quebecor wireless connexion. To demonstrate the impact of QBR's bundling

effect, it has been evaluated that 76% of new customers subscribing to the wireless service of Videotronwere already existing customers of the company . Furthermore, 26% of new customers are taking more than

one service. This gives a noticeable advantage to customers in terms of prices and in terms of costs for

Videotron. In the end, the numbers definitely say it all. Less than 30% are single service, while 13% are Quad

and 45 to 50% have triple services. It shows what an advantage the bundling effect is. In the meantime, QBR is

currently negotiating with Apple in order to reach a deal to offer the Iphone to their customer base, which

could attract even more customers.

2Vidotron press release, January 8, 2013.

4.70%

6.20%

4.10%

-4.80%-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

Communications Industry

2008-2012 Revenue CAGR

Industry RevenueSource: CRTC

1.40%

2.70%

5.20%

-6.00%-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

Industry Revenue growth

2012

Source: CRTC


6/22

Source of demand. Quebecor has a very specific

niche market by offering French services in the

province of Quebec. This French-language

barrier might limit growth, but it is also a

protection against outsiders (Netflix). Most of

the population of Qubec speak only very little

English and Quebecor has learned how to

leverage this to their advantage. First, their Illico

Illimit service makes a huge variety of movies in

French available to any customer. This is also a

way of protecting themselves against the threat

of Netflix or even the United States TV channels.

As for the wireless segment of the company, they

are able to offer very competitive products

because of their new entry in the market. Their

prices are lower than their competitors which increases the demand for their products. The level of

subscription to a telephonic service industry including bundling went up 16.9% from 2008 to 2012 3. The

amount of money generated from the Telecommunications sector went from 40.2 billion in 2008 to 43.9

billion in 2012, which shows an increase of 2.2% over those years. For further information regarding the

industry sector, please refer to Appendix 9.

Forecast demand for product. Telecommunications and Broadcasting are growing sub-sectors of the industry.

Written media will decrease and slowly be replaced by internet media. We expect Videotron's demand to

grow significantly. The increasing demand is mostly due to the very competitive prices that Quebecor are

able to offer with their bundling effect (TV Cable CAGR = 21% 2003-LTM, Internet CAGR = 14% 2003-LTM).

This also has an effect on the entry barrier for competitors. In the most recent example, T-mobile, an American

company who wanted to enter the Canadian telecommunication market, decided otherwise after observing

the bundling advantages our Canadian companies had. They have also expanded the horizon of their

Broadcasting services, which makes them more competitive not only against Canadian broadcasting

companies but also against the US TV channels and Netflix.

Regulation. The two-year contract cell phone plan is possibly a good opportunity to acquire more customers

because QBR has been stealing market share in the mobile industry since inception. Management doesnt

consider these changes as new threats since quality retention(3&4 services) is strong and growing.

Throne Speech. Canada is one of the developed countries with the highest monthly invoices for wireless

phones. The Canadian government wants to make competition grow . It estimates that this would make prices

go down 20%. As stated in the 2013 Speech from the Throne , the government is planning to reduce costs for

families by encouraging some bundling for entire families, and by improving the telecommunication network

for families living in a more rural environment4.

Forecast supply 700 MHz.QBR's mobility segment is a major weakness in their network qualitycompared totheir peers. Their competitors have had more time to invest in their infrastructure since they have been in the

business longer. In fact, the difference in network quality explains QBRsmore affordable price. This brings us

to the importance of the 700 MHz Spectrum auction for QBR in order to improve their network quality . First,

it will be the most powerful spectrum on the market, giving the strongest signal to the wireless carrier owning

it. Furthermore, it is much easier to deploy and can reach a wide range of territory with each antenna.

Videotron is among the 14 bidders for this auction and it would definitely reinforce their wireless telephone

services. Management does not intend to issue new debt or equity in order to acquire additional spectrum.

3QBR's compay report, 2013

4http://www.speech.gc.ca/fra/discours-integral

QBR's estimated growth

2013E 2014E

Wireless ARPU growth 20% 20%*Wireless Subscribers growth 10% 8%*

Telephony ARPU growth -0.50% -0.50%

Telephony Subscribers growth 2% 2%

Internet ARPU growth 4% 4%

Internet Subscribers growth 2% 2%

Cable TV ARPU growth 2% 2%

Cable TV Subscribers growth 1% 1%

*Not considering any acquisition
http://www.speech.gc.ca/fra/discours-integralhttp://www.speech.gc.ca/fra/discours-integralhttp://www.speech.gc.ca/fra/discours-integralhttp://www.speech.gc.ca/fra/discours-integral


7/22

Investment Summary

Good entry point.We issue a BUY recommendations for QBR with a

target price of 33.57$ and a 26.58% upside potential from currentprice level. QBR's has strong position on domestic market and they

have been consistently adjusting and satisfying customer's demand

by diversifying their services offering.

Good market prospects. We believe the company is well positioned in a growing market and that the

business model is evolving to adapt to current industry trend. As a matter of fact, the company is aiming at

upgrading his wireless segment while maintaining tight cost control concerning the News Media segment.

Therefore, we forecast a wireless customer base growth up to 855k by 2018E(please refer to appendix 2 and

Financial Analysis section for more information). We believe QBR's competitive pricing strategy and favorable

bundling effect will keep adding more customers in the upcoming years. When analyzing the current industry,

we believe the competitive intensity is favorable for growth since there is less company bidding in the 700mhz

auction(Wind exit the auction). Plus, QBR could initiate expansion measure to gain national exposure for his

wireless division (Ongoing negotiation with Mobilicity).

Source: Team Estimates, National Telcos data

As a matter of fact, QBR's churn rate is the lowest compare to his peers . Mainly due to his superior client

services, QBR was ranked the most respected telecommunications provider in Qubec for the seventh

consecutive year by Les Affairesmagazine, based on a Lger Marketing survey. Plus, the company is subject to

the french speaking barrier that act as a protection against outsiders, which limit growth but also reduce risk.

Valuation methods. We derived our target price by combining DCF valuation and multiple pricing with equal

weights. We believe the company will experience significant EBITDA growth mainly due to customer base

growth. Concerning our Multipliers approach, we believe that the peer group was appropriately chosen (S&P

500 Telecom for US exposure and ''BCE,RCI,T'' for national exposure).

Financial position. We like the fact that there areno significant debt repayment upcoming. We then believe

the company will experience higher than usual CAPEX expense, mainly related to Wireless infrastructure

acquisition (and possible company acquisition). Plus, we believe that the share repurchase from CDP from

45.3% to 24.6% of QMI(holding by CDP) will add significant value in the upcoming years to our analysis.

Investment risks. Besides the influence of Global macro (GDP, possible lower demand, taxes) we would like to

highlights our main preoccupation concerning the upcoming rising interest rates environment. Since Telecoms

companies are negatively correlated with interest rates, we could expect sell-off on telecoms stock if interest

rates were to raise. On the other hand, mainly high-yield dividend paying companies would to subject to this

correction (which is not the case for QBR's). We identify main risks in the investment risks section.

Valuation DCF Multipliers

Estimated price 40.72 26.40

Weights 50% 50%

Target Price 33.57$

Source: Team estimates


8/22

ValuationWe have considered two approaches to valuing QBR the Discounted Cash Flow (DCF) model and comparable

company multiple pricing.

DCF Valuation. We used the Discounted Cash Flow Model:

Free Cash Flow to the Firm (FCFF), as we believe that thismethod is suitable since we forecast significant capital

structure change in future years. According to our DCF

analysis, we expect the target price of $40.72 to be reached

(For complete calculation, please refer to appendix 5). The

model is sensitive mostly to the following factors.

Sales. The anticipated growth in sales is based on historical

industry growth according to different segments. We

analyzed all available CRTC growth rates and CAGR to identify

current industry trends. Then, taking all factors into account,

we established our own forecast (adding a premium on the

wireless revenue segment mainly due to the strong historical growth and strong customer retention compared

to peers). For the extended analysis and data, please refer to Appendix 2 of the detailed income statement.Capex. Due to the forthcoming spectrum acquisition and the possible acquisition of Mobilicity (which we did

not add in our forecast), future capital expenditures will be significant. These assumptions are all based on

feasible information and are currently ongoing. Those expenditures

(mostly 2014E), will average 800M$ per year(2013E-2018E).

WACC. The cost of equity was calculated using the CAPM model. We

used the 10-year government bond risk-free rate of 3.19% and a beta of

0.75 (which was regressed against the S&P500/TSX index). The market

risk premium is equal to 9.37% (based on the historical 8-year period).

The after-tax cost of debt was calculated at 5.56% considering a 25% tax

bracket for 2013E. Cost of debt was estimated using LT interest / LT debt

2013E. The value we obtained was a 8.22% WACC. For more detailsabout the components of WACC and its assumptions please refer to

Appendix 6.

Multiples. Having previously chosen the appropriate peer group as the

benchmark (S&P 500 Telecom Service and ''BCE,RCI,T''), we conducted

multipliers pricing using both benchmark P/S, EV/EBITDA and P/CF all

based on QBR's historical median discount (2008-2012). Then we

analyzed the average current discount obtained from our 2013E-2014E

forecasts. However, we didn't take P/CF and P/S into consideration since

we believe the EV/EBITDA is more appropriate considering his neutral

effect regarding peers capitals structure. In any case, there was a long-

term discount observed on QBR's market price relative to its peer groupin the past. The median historical discount amounted to 7.47% for

EV/EBITDA (compared to S&P 500 Telecom services), and also 6.41% for

EV/EBITDA (compared to BCE,RCI,T).

Our 2013E-2014E concerning the EV/EBITDA was currently trading at

9.27% above its median historical discount when compared to the S&P

500 Telecom service and 8.38% under its median historical discount

when compared to local peers (BCE,RCI,T). We believe an EV/EBITDA of

2013E: 6.2, 2014E: 5.81 is undervalued compared to national peers

(2013E: 7.2, 2014E: 6.9).

We treat both EV/EBITDA equally in our valuation, and we assigned equal weights for the years under

consideration. The price we obtained in such a combination equals $26.40, giving $33.56when combined with

the DCF using a 50-50 weighting procedure. For complete analysis, please refer to appendix 8.

Sum of PV of Unlevered FCF 3,294,406

PV of Terminal Value 8,163,139

Enterprise Value 11,457,544

+ Cash and Equivalents 350,000

- Debt 5,125,500

Minority Interest (24,6% Caisse) 1,643,783

Equity Value 5,038,261

Oustanding Shares 123,700

DCF Value per share $ 40.73

Components of WACC

Risk free rate 3.19%

Beta 0.75

Market Risk Premium 9.37%

Cost of debt 5.56%

Source: Team estimates, market data

EV/EBITDA

2013E 2014E

Canadian Telcos

BCE Inc 7.4 7.1

Rogers Com 7.2 6.9

TELUS 7.5 7.1

QBR's 6.2 5.81

Shaw 5.3 5.2

Median 7.2 6.9

Source: FactSet, Team estimates

EV/EBITDA Valuation Price Ponderation

Vo QBR's vs S&P 500

Telecom Service

$ 24.06 50%

Vo QBR's vs BCE, RCI, T $ 28.74 50%

Vo QBR's $ 26.40

Source: Team

Estimates, FactSet


9/22

Financial AnalysisARPU. We expect the ARPU to increase due to increases in the price andquality bundling. We believe that there is a chance that QBR will be able

to secure more wireless subscriptions nationally by purchasing Mobilicity.

However, we did not include such acquisition in our 2014E. Moreover,

QBR's continued focus on the ARPU is expected to result in slower short-term growth but should drive longer-term growth of revenue and

EBITDA5. In any case, as of Q3, the wireless average monthly ARPU was

$41.55 (+0.5%). Compared to their peers (as of Q2, BCE: $56.85,

T: $61.12, RCI: $59.1), the lower ARPU compared with the incumbents is

a result of Vidotrons lack of higher data ARPU from smartphone

customers; however, the company is striking a balance between customer

growth and price discounting, says Desjardins securities analyst Maher

Yaghi.

Regarding the wireless segment, since roaming costs are now limited to

$50 per month, we expect future growth to be mainly driven by

customer acquisition rather than ARPU increase (For further detailsconcerning industry data and roaming cost margins, please refer to

Appendix 9). However, we forecast the wireless ARPU in 2014E to be:

$42.20, 2015E: $44.73, 2016E: $47.41. In any case, we maintain the view

that slower growth in other segments will maintain sustainable overall

ARPU growth (Please refer to Appendix 2 for a complete analysis of ARPU

growth and subscriber growth).

Earnings.The year 2012 was a record in terms of revenues and EBITDA for

the telecommunications segment. The realised EBITDA CAGR in the years

2003-2013 was 16% and revenue CAGR for the same period was 12% .

These impressive results were mainly driven by the enormous growth in

the mobility division, which passed the EBITDA breakeven point in Q12013. Concerning the other business segments, EPS is not stable over

time since QBR is experiencing several write-offs from their News Media

division (Q3 write-off: -$305.8M, LTM NI: -198M). We are expecting

steady growth of earnings in the longer term starting from 2014E, CAGR

2014E-2018E: 8.61%.

Medium- and long-term margin levels. Although historically QBR margin

levels were volatile as it was operating in different industries (from

printing to telecommunications), we will focus on the

telecommunications margin in our analysis since we believe that future

growth depends on it (historically 2009-LTM). Gross margin and EBIT

margin have been declining since 2009 (Gross:24.80% to 18.46%, EBIT:

24.62% to 18.46%). However, the EBITDA margin managed to sustain

and stabilize during the same period (33.73% to 32.25%) due to good

management and tight cost control. As mentioned above, the NI margin is subject to several write-offs, so we

will focus on the EBITDA margin. We expect the EBITDA margin to be 33.13% in 2013E and to grow sustainably

through every year of the forecast to the level of approximately 35.69% in 2018E, which should lead to a

2013E EBITDA of $1439.55Mto a 2018E EBITDA of $1950.25M

5Scotia bank capital investment report

0.00%

10.00%

20.00%

30.00%

40.00%

2010 2011 2012

Lower ROE compared to

peers

MEDIAN PEER ROE

-5.54%

9.46%

24.46%

39.46%

54.46%

69.46%

84.46%

99.46%

0

1000

2000

3000

4000

5000

6000Stable margins (Millions)

Revenue EBITDA Margin

NI Margin

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

Cash Flow Pattern

CFO CFI CFF

Source: Team Estimates


10/22

Dupont Analysis. In the historical period analyzed, QBR'S ROE

declined (2009 ROE 26.87%, 2012 ROE 14.34%). Previously, the

main drivers of such levels were a decline of 39.22% of NI (2009-

2012), compared to a decline of only 21.88% of total Shareholder's

equity. When analyzing basic DuPont ROE, we realized that Asset

turnover and Equity Leverage remains stable over time, only the

net margin is responsible for the decrease in the ROE level. Ouranalysis indicates impaired ROE forecasts (2013E: -17.18%, 2014E:

11.48%, 2015E: 10.37%) mainly due to negative net income for

2013E and higher equity growth compared to NI growth.

However, we evaluate the expected ROE to be less attractive than

the historical performance of the company. We forecast ROE to be

10.44% in 2018E.

Cash generation ability. In the historical period analyzed (2010-

2012), QBR presented positive CFO and negative CFI due to a high

level of CAPEX. Moreover, QBR's cash conversion cyclehas been

volatile over the years (2010: -17.50, 2011: 8.53, 2012: 19.99).

We believe that CCC will continue to be volatile over the comingyears (2013E: -0.25 to 2018E: 28.16) mainly due to a decrease of

outstanding sales (higher receivable turnover) and a stable days

payable outstanding. We also forecast the 2014E CAPEX to be

relatively higher than usual since QBR is bidding in the

forthcoming spectrum auction and also because we know that

the company might be interested to acquire Mobilicity. We know

QBR has national wireless interest and we also know that the

CRTC wants a more competitive wireless market .

The company liquidity ratios have remained historically stable (current ratio 2010: 1.01, 2011:0.89,

2012:0.91). We expect the future level of liquidity ratios to increase slightly (2013E: 0.91, 2018E: 1.23). In any

case, we believe that QBR's Cash ratio will decrease in 2014E due to Spectrum acquisition (CFO's refer to thefact that the company is planning to use liquid assets in order to finance the Spectrum auction). For more

financial ratios, please see Appendix 4.

In previous years, the company financed its resources mainly from debt (long-term debt 2010: 3601M, 2012:

5025M) while equity decreased (2010: 1412M, 2012: 914M). In the period of the forecast, we predict the ratio

of Net Debt/EBITDA to decrease over the years (2013E: 3.34, 2018E: 3.27). We believe in the ability of

management to deleverage the company by sustaining EBITDA growth and by financing through external

sources (common equity 2013E: 820M, 2018E: 1749M). We believe that QBR's financing structure will convert

back to their historical Debt/Equity level (2010: 257%, 2011: 266%, 2012: 554%). We forecast the Total

Debt/Equity level will decrease from 2013E: 629% to 2018E: 319%to reach historical equilibrium. Moreover,

QBR is not facing any significant Debt maturity repayments over the next few years.

ROE

-17.18%|10.44%

ROA

-2.64%|2.35%

SALES/ASSETS

0.48|0.56

NI/SALES

-5.54%|4.17%

ASSET/EQUITY

6.51|4.44

DupontAnalysis

Legend

2013E|2018E

0

500

1000

1500

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

Relation of CAPEX to CFO

CFO CAPEX


11/22

Investment Risks

MARKET RISK: The arrival of new competition - CRTC

The CRTC currently wants a more competitive telecoms market. The CRTC has been actively pressuring the big

telecommunications companies into increasing competition. To achieve that goal, they have been encouraging

the arrival of new companies. The CRTC has been introducing new laws to facilitate the insertion of new

competitors and will continue to follow this path in the immediate future. This could mean that the major

companies will have to adapt their strategies. The current companies need to adapt to this new environment

where the government wants the users of telecom services to pay less for the same service. They have already

started doing so by implementing the $50 cap associated with wireless roaming costs.

MARKET RISK: The auction of new spectrum

Quebecor Inc. must purchase a large part of the spectrum to be able to stay in the competition. Acquiring

spectrum would largely improve the service offered by Vidotron. The problem is that the undeterminedvaluethat will have to be paid may affect the operating activities of the company or the shareholder structure.

ECONOMIC RISK: Global macro - Rising Interest Rates

Since telecom stocks are negatively correlated with interest rates, if interest rates were to rise, there would be

a sell-off for higher yield companies and into bonds. This sell-off would drive down telecoms share price.

Another effect would be that borrowing would become more expensive. In fact, telecom companies have a

heavy debt load due to infrastructure and pension plans, and expensive debt will squeeze future profits even

further.

ECONOMIC RISK: Global macro - Slower growth in the Canadian economy

The demand for Quebecors products depends largely on Canadian income. QBR's products, being mostly in

the entertainment industry, are largely consumed when the population is in a period of surplus. Therefore it isvery important for the major companies in the entertainment and telecommunications industries to have a

growing economy.

ECONOMIC RISK: Saturation of marketlower demand

The telecommunications market has been growing over the past few years. Since 2009, the number of wireless

phones has grown by 25.5%. The expansion possible for the number of wireless phones sold is directly

correlated with the number of people in a given population. Consequently, the market will, at some point, be

saturated.

POLITICAL RISK: Higher taxes for companies in Canada

Canadian companies are already subject to high taxes on their products. Taxes for corporations that operate inthe province of Quebec are higher than elsewhere in the country. This means that Quebecor, which operates

in Qubec, has to be aware of this disadvantage, and to be careful that taxes may be increased from the

Federal point of view. If this event was to occur, then they would be even more penalized because of the

Quebec taxes.

Team disclosure:

We assign a BUY recommendation when a security is expected to deliver a return of 15% or greater over the

next year. A SELL rating is assign when the security is expected to deliver a negative return over the next year,

while a HOLD return implies flat returns over the next year.


12/22

Appendix1:Statementoffinancialposition

Balance Sheet

(in millions of dollar)2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Assets

Cash & ST Investments 248 146.7 228.7 350 160 451.92 474.516 498.24 474.52

Short-Term Receivables 594.9 632.4 589.3 550 605.00 373.03 413.33 455.27 547.20

Inventories 245.2 283.6 255.5 222 407 468.05 538.26 619.00 711.85

Other Current Assets 133 31.3 38 38 38 38 38 38 38

Total Current Assets 1,221 1,094 1,112 1,160 1,210 1,331 1,464 1,611 1,772

Net Property, Plant & Equipment 2,851 3,211 3,406 3,474 3,544 3,614 3,687 3,760 3,836

Total Investments and Advances 29 35 36 36 36 36 36 36 36

Intangible Assets & Goodwill 4,590 4,620 4,362 4,248 4,545 4,264 4,171 4,064 3,943

Deferred Tax Assets 9 20.6 23.9 132 24 24 24 24 24

Other Assets 93.8 57.9 69 66 66 66 66 66 66

Total Assets 8,793 9,039 9,008 9,116 9,225 9,336 9,448 9,561 9,676

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 36.5 118.7 37 37 37 37 37 37 37

Accounts Payable 813 559 579 650 666.25 682.91 699.98 717.48 735.42

Income Tax Payable 33.6 2.7 33.9 33.9 33.9 33.9 33.9 33.9 33.9

Other Current Liabilities 275.1 547 575.7 552 568 584 600 617 634

Total Current Liabilities 1,158 1,227 1,225 1,273 1,305 1,337 1,371 1,405 1,440

Long-Term Debt 3,601.0 3,688.0 5,025.0 5,125.5 5,228.0 5,332.6 5,132.5 5,435.0 5,543.7

Provision for Risks & Charges 66.1 249.6 261.9 110 110 110 110 110 80

Deferred Tax Liabilities 582.5 592.5 594.7 844.3 601.5 326.53 412.05 79.84 30.27

Other Liabilities 543.5 410.5 356.1 363.22 370.49 377.90 385.45 393.16 401.03

Total Liabilities 5,951 6,168 7,463 7,716 7,615 7,484 7,411 7,423 7,495

Common Equity 1,412 1,426 914 820 1,114 1,314 1,445 1,590 1,749

Total Shareholders' Equity 1,412 1,426 914 820 1,114 1,314 1,445 1,590 1,749

Accumulated Minority Interest 1,430 1,444 631 580 496 538 591 650 715

Total Equity 2,842 2,871 1,545 1,400 1,610 1,852 2,037 2,138 2,181

Liabilities & Shareholders' Equity 8,793 9,039 9,008 9,116 9,225 9,336 9,448 9,561 9,676


13/22

Appendix2:Incomestatement

Income Statement (in $) 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018ETelecom SegmentsWirelessSubscribers 136,100 290,600 402,600 483,120 579,744 666,706 733,376 806,714 855,117Subscriber Growth 53.17% 27.82% 20.00% 20.00% 15.00% 10.00% 10.00% 6.00%Monthl ARPU $32.57 $32.32 $35.52 $39.07 $42.20 $44.73 $47.41 $49.78 $52.27

ARPU Growth -0.79% 9.01% 10.00% 8.00% 6.00% 6.00% 5.00% 5.00%Wireless Sub-total $53,200,000.00 $112,700,000.0

$171,600,000.0

$226,512,000.0

$293,559,552.0

$357,849,093.8

$417,252,043.4

$481,926,110.2

$536,383,760.6

TelephonySubscribers 1,114,300 1,205,300 1,264,900 1,290,198 1,316,002 1,342,322 1,369,168 1,382,860 1,396,689Subscriber Growth 7.55% 4.71% 2.00% 2.00% 2.00% 2.00% 1.00% 1.00%Monthl ARPU $30.65 $30.16 $29.97 $29.82 $29.67 $29.67 $29.67 $29.67 $29.67

ARPU Growth -1.64% -0.63% -0.50% -0.50% 0.00% 0.00% 0.00% 0.00%Tele hon Sub-total $409,900,000.0

$436,200,000.0

$454,900,000.0

$461,678,010.0

$468,557,012.3

$477,928,152.6

$487,486,715.6

$492,361,582.8

$497,285,198.6

InternetSubscribers 1,252,100 1,338,100 1,394,800 1,422,696 1,451,150 1,480,173 1,509,776 1,539,972 1,570,771

Subscriber Growth 6.43% 4.07% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%Monthly ARPU 42.88 43.48 46.15 48.00 49.92 51.92 53.99 56.15 58.40

ARPU Growth 1.38% 5.79% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%Internet Sub-total $644,300,000.0

$698,200,000.0

$772,500,000.0

$819,468,000.0

$869,291,654.4

$922,144,586.9

$978,210,977.8

$1,037,686,205.

$1,100,777,526.

Cable TVSubscribers 1,811,600 1,861,500 1,855,000 1,873,550 1,892,286 1,911,208 1,920,764 1,930,368 1,940,020Subscriber Growth 2.68% -0.35% 1.00% 1.00% 1.00% 0.50% 0.50% 0.50%Monthl ARPU $43.73 $45.33 $48.52 $49.49 $50.48 $51.49 $52.26 $53.04 $53.84

ARPU Growth 3.54% 6.57% 2.00% 2.00% 2.00% 1.50% 1.50% 1.50%Cable TV Sub-total $950,600,000 $1,012,600,000 $1,080,000,000 $1,151,886,233 $1,228,557,310 $1,310,331,715 $1,397,549,133 $1,490,571,859 $1,589,786,300OTHERS $151,200,000 $171,300,000 $119,000,000 $82,667,834 $57,428,326 $39,894,751 $27,714,392 $19,252,847 $13,374,715Telecom Revenues $2,209,000,000 $2,431,000,000 $2,598,000,000 $2,659,544,243 $2,917,393,855 $3,108,148,299 $3,308,213,262 $3,521,798,604 $3,737,607,501News Media $1,034,800,000 $1,018,400,000 $960,000,000 $904,948,940 $853,054,774 $804,136,472 $758,023,383 $714,554,642 $673,578,610Broadcasting $448,200,000 $445,500,000 $461,100,000 $477,246,263 $493,957,916 $511,254,759 $529,157,283 $547,686,696 $566,864,951Leisure and Entertainment $302,500,000 $312,900,000 $292,500,000 $273,430,010 $255,603,317 $238,938,863 $223,360,874 $208,798,516 $195,185,573Interactive Technolo ies and Communications $98,000,000 $120,900,000 $145,500,000 $175,105,459 $210,734,858 $253,613,911 $305,217,734 $367,321,590 $442,061,963Head Office and Interse ments -$92,400,000 -$121,800,000 -$142,400,000 -$145,248,000 -$148,152,960 -$151,116,019 -$154,138,340 -$157,221,106 -$160,365,529Revenues $4000 100 000 $4206 900 000 $4314 700 000 $4345 026 914 $4582 591 760 $4764 976 285 $4969 834 196 $5202 938 941 $5454 933 070Cost of Goods Sold (COGS) $2,668,000,000 $2,865,000,000 $2,948,000,000 $2,905,479,389 $3,022,746,632 $3,115,982,820 $3,226,233,736 $3,357,160,120 $3,504,679,902Gross Income $930,100,000 $829,500,000 $803,300,000 $1,439,547,525 $1,559,845,128 $1,648,993,465 $1,743,600,460 $1,845,778,821 $1,950,253,168

EBITDA $1,332,100,000 $1,341,900,000 $1,366,700,000 $1,439,547,525 $1,559,845,128 $1,648,993,465 $1,743,600,460 $1,845,778,821 $1,950,253,168EBITDA Mar in 33.30% 31.90% 31.68% 33.13% 34.04% 34.61% 35.08% 35.48% 35.75%Depreciation & Amortization Expense $422,400,000 $512,200,000 $600,300,000 $686,000,000 $720,300,000 $756,315,000 $794,130,750 $833,837,288 $875,529,152EBIT $909,700,000 $829,700,000 $766,400,000 $753,547,525 $839,545,128 $892,678,465 $949,469,710 $1,011,941,534 $1,074,724,016

Interest $282,700,000 $327,000,000 33350000000% $380,000,000 $414,200,000 $451,478,000 $492,111,020 $536,401,012 $584,677,103Unusual Expense $4,200,000 -$17,800,000 $114,000,000 $675,000,000 $0 $0 $0 $0 $0EBT $622,800,000 $520,500,000 $318,900,000 -$301,452,475 $425,345,128 $441,200,465 $457,358,690 $475,540,522 $490,046,913Income Taxes $156,400,000 $141,400,000 $100,100,000 -$75,363,119 $110,589,733 $119,124,126 $123,486,846 $128,395,941 $132,312,667Tax Rate 25.11% 27.17% 31.39% 25.00% 26.00% 27.00% 27.00% 27.00% 27.00%Minorit Interest Ex ense $236,500,000 $182,000,000 $99,800,000 $60,900,000 $130,000,000 $130,000,000 $130,000,000 $130,000,000 $130,000,000Net Income $230,100,000 $201,000,000 $167,700,000 -$240,552,475 $184,755,395 $192,076,340 $203,871,843 $217,144,581 $227,734,247

Net Income $230,100,000 $201,000,000 $167,700,000 -$240,552,475 $184,755,395 $192,076,340 $203,871,843 $217,144,581 $227,734,247Total Shares 130 128.8 132.2 123.7 142.7 138.5 136.8 134 132.2NI Margin 5.75% 4.78% 3.89% -5.54% 4.03% 4.03% 4.10% 4.17% 4.17%


14/22

Appendix3:Statementofcashflows

Statement of cash flow

(in millions of dollar)

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Operating Activities

Net Income / Starting Line 230.1 201.0 167.7 -240.6 184.8 192.1 203.9 217.1 227.7

Depreciation, Depletion & Amortization 402.2 512.2 600.3 686.0 720.3 756.3 794.1 833.8 875.5

Deferred Taxes & Investment Tax Credit 100.0 159.1 43.1 100.7 100.7 100.7 100.7 100.7 100.7

Other Funds 222.4 146.2 186.2 184.9 184.9 184.9 184.9 184.9 184.9

Funds from Operations 954.7 1,018.5 997.3 731.1 1,190.7 1,234.1 1,283.7 1,336.6 1,388.9

Changes in Working Capital -109.5 -152.2 125.3 -113.0 -223.8 187.6 -93.4 -105.2 -166.8

Net Operating Cash Flow 845.2 866.3 1,122.6 618.1 967.0 1,421.6 1,190.2 1,231.5 1,222.1

Investing Activities

Capital Expenditures From Fixed Assets -707.1 -781.0 -710.6 -670.0 -1,246.0 -792.0 -831.6 -873.2 -916.8

Capital Expenditures from Others -113.9 -91.6 -94.9 -100.1 -100.1 -100.1 -100.1 -100.1 -100.1

Net Assets from Acquisitions -3.1 -55.7 -1,002.0 -4.0 -36.0 -4.0 -4.0 -4.0 -4.0

Sale of Fixed Assets & Businesses 0.0 12.0 8.4 136.7 10.0 12.0 8.0 10.0 12.0

Purchase/Sale of Investments 30.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other Funds 54.7 3.2 17.2 25.0 25.0 25.0 25.0 25.0 25.0

Net Investing Cash Flow -739.4 -913.1 -1,781.9 -612.4 -1,347.1 -859.1 -902.7 -942.3 -983.9

Financing Activities

Cash Dividends Paid -12.9 -12.8 -12.6 -12.4 -12.5 -12.7 -12.8 -12.8 -12.9

Change in Capital Stock 0.0 -30.2 -34.7 83.2 12.6 36.7 -31.5 -128.1 -197.9

Issuance/Reduction of Debt, Net -74.8 199.1 873.4 6.5 396.5 304.6 -68.7 447.0 267.7

Other Funds -74.4 -205.7 -84.5 -121.5 -121.5 -121.5 -121.5 -121.5 -121.5Net Financing Cash Flow -162.1 -49.6 741.6 -44.2 275.1 207.1 -234.5 184.7 -64.6

Exchange Rate Effect -1.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Miscellaneous Funds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Change in Cash -57.3 -96.3 82.3 -38.5 -105.0 769.6 53.1 473.8 173.5

Free Cash Flow 185.9 92.5 222.5 464.9 749,031.6 738,056.9 788,420.2 844,097.7 900,934.7


15/22

Appendix4:KeyFinancialRatios

Key Financial Ratios 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Profitability Ratios

ROE %) 17.82% 14.16% 14.34% -17.18% 11.48% 10.37% 10.01% 10.15% 10.44%ROA (%) 2.68% 2.25% 1.86% -2.64% 2.00% 2.06% 2.16% 2.27% 2.35%ROS (%) 22.74% 19.72% 17.76% 17.34% 18.32% 18.73% 19.10% 19.45% 19.70%Return on Invested Capital (%) 4.60% 3.97% 3.03% -3.69% 2.70% 2.67% 2.84% 2.87% 2.95%Cash Flow Return on Invest Capital (%) 16.90% 16.90% 20.31% 10.40% 15.74% 21.89% 18.00% 18.11% 17.07%Gross Margin (%) 23.17% 19.72% 18.46% 33.13% 34.04% 34.61% 35.08% 35.48% 35.75%Operating Margin (%) 22.75% 19.72% 18.46% 16.83% 25.98% 25.90% 25.83% 25.69% 25.46%Pretax Margin (%) 15.57% 12.47% 8.45% -6.94% 9.28% 9.26% 9.20% 9.14% 8.98%

Net Profin Margin (%) 5.75% 4.78% 3.85% -5.54% 4.03% 4.03% 4.10% 4.17% 4.17%EPS (recurring) 1.78 1.46 1.88EPS (basic) 1.79 1.57 1.33 -1.98 1.29 1.28 1.39 1.51 1.61EPS (diluted) 1.76 1.56 1.28Liquidity Ratios

Current Ratio 1.01 0.89 0.91 0.91 0.93 1.00 1.07 1.15 1.23Quick Ratio 0.80 0.66 0.70 0.74 0.62 0.65 0.68 0.71 0.74Cash Ratio 0.21 0.12 0.19 0.27 0.12 0.34 0.35 0.35 0.33Efficiency Ratios

Total Asset Turnover ATO) 0.45 0.47 0.48 0.48 0.50 0.51 0.53 0.54 0.56Fixed Asset Turnover 1.40 1.31 1.27 1.25 1.29 1.32 1.35 1.38 1.42Working Capital Turnover 63.59 -31.56 -38.24 -38.45 -48.33 -739.26 53.31 25.34 16.47Receivable Turnover 7.17 6.86 7.12 7.63 7.94 9.74 12.64 11.98 10.88Days of Sales Outstanding 50.92 53.25 51.23 47.85 46.00 37.46 28.88 30.47 33.54Inventory Turnover 14.59 12.77 13.16 12.17 9.61 7.12 6.41 5.80 5.27Days of Inventory on Hand 25.04 28.58 27.73 29.99 37.98 51.25 56.92 62.91 69.30Payables Turnover 3.91 4.98 6.19 4.67 4.87 4.71 4.77 4.85 4.95Days of Payables Outstanding 93.46 73.30 58.97 78.10 74.89 77.50 76.56 75.25 73.70Cash Conversion Cycles (Days) -17.50 8.52 19.99 -0.25 9.09 11.21 9.24 18.13 29.14Credit Analysis

Net Debt/EBITDA x) 2.58 2.73 3.44 3.34 3.27 2.98 2.69 2.69 2.62Net Debt/(EBITDA-Capex) (x) 6.90 7.80 8.08 3.31 4.94 3.05 2.75 2.75 2.67Total Debt/EBITDA (x) 2.77 2.84 3.61 2.43 2.31 2.23 2.04 2.04 1.97LT Debt/EBITDA (x) 2.74 2.75 3.58 2.41 2.29 2.22 2.02 2.03 1.96LT Debt/E uit %) 255.00% 258.60% 550.10% 625.06% 469.30% 405.83% 355.09% 341.84% 316.98%LT Debt/Total Capital (%) 71.31% 70.48% 84.09% 85.67% 81.96% 79.79% 77.59% 76.96% 75.63%LT Debt/Total Assets (%) 40.95% 40.81% 55.79% 56.22% 56.67% 57.12% 54.33% 56.84% 57.29%Total Debt/Total Assets (%) 41.36% 42.12% 56.20% 56.63% 57.07% 57.52% 54.72% 57.23% 57.68%

Net Debt/Total Equity (%) 240.10% 256.60% 529.10% 586.89% 458.26% 374.25% 324.82% 312.83% 291.96%

Total Debt/Total Equity (%) 257.60% 266.90% 554.20% 629.57% 472.62% 408.64% 357.65% 344.16% 319.09%Net Debt/Total Capital (%) 67.13% 69.94% 80.89% 80.44% 80.03% 73.58% 70.98% 70.43% 69.66%Total Debt/Total Capital (%) 72.04% 72.75% 84.71% 86.29% 82.54% 80.34% 78.15% 77.49% 76.14%

Net Debt/FFO (x) 3.55 3.59 4.85 6.58 4.29 3.98 3.66 3.72 3.68LT Debt/FFO x) 3.77 3.62 5.04 7.01 4.39 4.32 4.00 4.07 3.99FCF/Total Debt (x) 0.04 0.02 0.08 0.09 142.27 137.45 152.51 154.26 161.44CFO/Total Debt (x) 0.23 0.23 0.22 0.12 0.18 0.26 0.23 0.23 0.22


16/22

Appendix5:DCFAnalysis

DCF ANALYSIS

Terminal Growth Rate 1%

WACC 8.22%

2014 2015 2016 2017 2018 Term

Operating Income (EBIT) $839,545 $892,678 $949,470 $1,011,942 $1,074,724

- Income tax expense $110,590 $119,124 $123,487 $128,396 $132,313

Net operating profit after tax $728,955 $773,554 $825,983 $883,546 $942,411

+ Depreciation and amortization $720,300 $756,315 $794,131 $833,837 $875,529

- Capital expenditures -$700,000 -$792,000 -$831,600 -$873,180 -$916,839

+ Working capital changes -223.75 187.58 -93.43 -105.18 -166.84Unlevered Free Cash Flow (FCFF) 749,032 $ 738,057 $ 788,420 $ 844,098 $ 900,935 $ 909,944 $

Sum of PV of Unlevered FCF 3,294,406 Multiple (From appendix 8) Price Ponderation

PV of Terminal Value 8,163,139 Vo QBR's vs S&P 500 Telecom S ervice $ 24.06 50%

Enterprise Value 11,457,544 Vo QBR's vs BCE, RCI, T $ 28.74 50%

+ Cash and Equivalents 350,000 Vo QBR's $ 26.40

- Debt 5,125,500

Minority Interest (24,6% Caisse) 1,643,783

Equity Value 5,038,261

Oustanding Shares 123,700

DCF Value per share $ 40.72

Appendix5.1:SensitivityAnalysis

Change in forecast level ofWACC

Change in forecast level of Terminal FCF Growth

0.00% 0.50% 1.00% 1.50% 2.00%

7.00% 45.61 50.06 55.25 61.39 68.76

7.50% 40.49 44.27 48.63 53.71 59.72

8.00% 36.03 39.26 42.96 47.23 52.21

8.22% 34.24 37.27 40.72 44.69 49.29

9.00% 28.61 31.04 33.78 36.89 40.44

9.50% 25.50 27.63 30.02 32.70 35.74

10.00% 22.70 24.59 26.68 29.02 31.64


17/22

Appendix6:WACCAnalysis

WACC

Marginal tax rate 30.0%

Risk free rate 3.19%

Market risk premium 9.37%

Beta 0.75

Cost of equity 10.2%

Credit rating BBB

Credit spread over risk free rate 3.6%

Cost of debt 7.4%

After tax cost of debt 5.6%

Normalized Debt/Capital 42.9%

Weighted average cost of equity 6.6%

Weighted average cost of debt 2.3%

WACC 8.22%

Weighted Cost of Capital

Risk free rate 10-YEAR canadian government bond (3.19%)

Beta QBR's changes in price minus Rf changes in price regressed against S&P 500/TSX changes in prices minus Rf changes in price.

Then, we took out all the stock splits from the regression and we obtained a beta of 0.75

Market Risk Premium monthly % change of the S&P/TSX minus the monthly % change of the Rf(10yr) on a 8 years time period

Cost of Debt Valued at 5.56% after tax. This factor was estimated using company data from financial statement (Q3) and from FactSet

(Market Value of Debt). We calculated the cost of debt using the Interest paid 2013E on the Market Value of Debt for 2013E.

Marginal tax rate The historical median effective tax rate was 27.11% (2010-2012). We fixed an estimated 25% for our 2013E.

Capital Structure During years 2013E-2018E, we belive QBR's will incur new debt and equity in order to finance upcoming acquisition. The

target capital structure, based on historical DEBT/EQUITY, will gradually convert back to historical equilibrium (about 300%

debt/equity). We used the Normalized Debt/Capital of 42.9% in our calculation.


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Appendix7:EBITDAMarginbySegment

Industry Segments Telecommunication News Media Broadcasting Leisure and EntertainmentInteractive Technologies

and Communications

Head office and

IntersegmentsTotal

(in millions of CAN$) 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012

Revenues $2,430.70 $2,635.10 $1,018.40 $960.00 $445.50 $461.10 $312.90 $292.50 $120.90 $145.50 $121.80 $142.40 $4,206.60 $4,351.80

COGS 1,331.90 1,410.10 868.30 844.90 395.00 423.00 286.30 279.40 113.00 135.70 114.00 139.90 2,864.90 2,948.20

EBITDA 1,098.80 1,225.00 150.1 115.1 50.5 38.1 26.6 13.1 7.9 9.8 7.8 2.5 1,341.70 1,403.60

EBITDA margin 45.21% 46.49% 14.74% 11.99% 11.34% 8.26% 8.50% 4.48% 6.53% 6.74% 6.40% 1.76% 31.90% 32.25%


and Communications

Head office and

IntersegmentsTotal

(in millions of CAN$) 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E

Revenues $2,659.54 $2,917.39 $904.95 $853.05 $477.25 $493.96 $273.43 $255.60 $175.11 $210.73 -$145.25 -$148.15 $4,345.03 $4,582.59

COGS 1,388.02 1,522.59 796.36 750.69 437.83 453.16 265.23 247.94 163.30 196.53 -145.25 -148.15 2,905.48 3,022.75

EBITDA 1,271.53 1,394.81 108.59 102.37 39.42 40.80 8.20 7.67 11.80 14.20 0.00 0.00 1,439.55 1,559.85

EBITDA margin 47.81% 47.81% 12.0% 12.0% 8.26% 8.26% 3% 3% 6.74% 6.74% 0


and Communications

Head office and

IntersegmentsTotal


Revenues $3,108.15 $3,308.21 $804.14 $758.02 $511.25 $529.16 $238.94 $223.36 $253.61 $305.22 -$151.12 -$154.14 $4,764.98 $4,969.83

COGS 1,622.14 1,726.56 707.64 667.06 469.03 485.45 231.77 216.66 236.52 284.65 -151.12 -154.14 3,115.98 3,226.23

EBITDA 1,486.01 1,581.66 96.50 90.96 42.23 43.71 7.17 6.70 17.09 20.57 0 0 1,648.99 1,743.60

EBITDA margin 47.81% 47.81% 12.0% 12.00% 8.26% 8.26% 3% 3% 6.74% 6.74%

Industry Segments Telecommunication News Media Broadcasting Leisure and EntertainmentInteractive Technologies and

CommunicationsHead office and Intersegments Total


Revenues $3,521.80 $3,737.61 $714.55 $673.58 $547.69 $566.86 $208.80 $195.19 $367.32 $442.06 -$157.22 -$160.37 $5,202.94 $5,454.93

COGS 1,838.03 1,950.66 628.81 592.75 502.45 520.04 202.53 189.33 342.56 412.27 -157.22 -160.37 3,357.16 3,504.68

EBITDA 1,683.77 1,786.95 85.75 80.83 45.24 46.82 6.26 5.86 24.76 29.79 0 0 1,845.78 1,950.25

EBITDA margin 47.81% 47.81% 12.0% 12.0% 8.26% 8.26% 3% 3% 6.74% 6.74%


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Appendix8:Multiples

Benchmark S&P 500 Telecom Benchmark BCE, Rogers, Telus

Share Price (10JAN) $ 26.52 Share Price (10JAN) $ 26.52

Share out 2013E 123,700,000.00 Share out 2013E 123,700,000

EBITDA 2013E $ 1,439.55 EBITDA 2013E $ 1,439.55

P/S 2008 2009 2010 2011 2012 2013E P/S 2008 2009 2010 2011 2012 2013E

Benchmark P/S 1.02 1.06 1.27 1.29 1.38 1.63 Benchmark P/S 1.48 1.37 1.54 1.74 1.83 1.90

QBR's P/S 0.34 0.47 0.61 0.53 0.59 0.76 QBR's P/S 0.34 0.47 0.61 0.53 0.59 0.76

Discount 66.67% 55.66% 51.97% 58.91% 57.25% 53.68% Discount 77.08% 65.78% 60.39% 69.60% 67.82% 60.26%

MEDIAN of historical discount 57.25% Stock is historically trading at a 57.25% discount MEDIAN of historical discount 67.82% Stock is historically trading at a 67.82% discount

Current discount 53.68% Currently trading at 53.68% discount Current discount 60.26% Currently trading at 60.26% discount

Discount spread 3.57% Overvalued Discount spread 7.56% Overvalued

EV/EBITDA 2008 2009 2010 2011 2012 2013E 2014E EV/EBITDA 2008 2009 2010 2011 2012 2013E 2014E

Benchmark EV/EBITDA 5.04 5.43 5.89 6.22 7.23 6.06 5.77 Benchmark EV/EBITDA 5.71 5.29 5.82 6.78 6.95 7.13 7

QBR's EV/EBITDA 5.97 5.11 5.45 5.45 5.61 6.2 5.81 QBR's EV/EBITDA 5.97 5.11 5.45 5.45 5.61 6.2 5.81

Discount -18.45% 5.89% 7.47% 12.38% 22.41% -2.89% -0.72% Discount -4.49% 3.46% 6.41% 19.66% 19.24% 12.60% 16.98%

MEDIAN of historical discount 7.47% Stock is historically trading at 7.47% discount MEDIAN of historical discount 6.41% Stock is historically trading at 6.41% discount

Current Discount -1.80% Currently trading at 1.80% Premium Current Discount 14.79% Currently trading at 14.79% discount

Discount spread 9.27% Overvalued Discount spread -8.38% Undervalued

P/CF 2008 2009 2010 2011 2012 2013E P/CF 2008 2009 2010 2011 2012 2013E

Benchmark P/CF 3.75 3.55 4.27 4.4 4.77 6.77 Benchmark P/CF 4.93 4.56 5.64 6.59 6.48 6.97

QBR's P/CF 1.63 1.9 2.89 2.59 2.28 5.31 QBR's P/CF 1.63 1.9 2.89 2.59 2.28 5.31

Discount 56.53% 46.48% 32.32% 41.14% 52.20% 21.60% Discount 66.96% 58.36% 48.76% 60.68% 64.83% 23.82%

MEDIAN of historical discount 46.48% Stock is historically trading at 46.48% discount MEDIAN of historical discount 60.68% Stock is historically trading at 60.68% discount

Current Discount 21.60% Currently trading at 21.60% discount Current Discount 23.82% Currently trading at 23.82% discount

Discount spread 24.88% Overvalued Discount spread 36.86% Overvalued

QBR's vs S&P 500 Telecom Service Price Ponderation QBR's vs BCE, RCI, T Price Ponderation

Vo P/S 25.57 0% Vo P/S 24.52 0%

Vo EV/EBITDA 24.06 100% Vo EV/EBITDA 28.74 100%

Vo P/CF 19.92 0% Vo P/CF 16.74 0%

Vo $ 24.06 Vo $ 28.74

Valuation Price Ponderation

Vo QBR's vs S&P 500 Telecom Service $ 24.06 50%

Vo QBR's vs BCE, RCI, T $ 28.74 50%

Vo QBR's $ 26.40


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Appendix9:CommunicationsIndustryOverview2011-2012

Wireless (46%)

Revenue 20.4G, up 6.5%

Revenue CAGR 6.20%

Volume 27.9M, up 1.8%

Volume CAGR 6.00%

ARPU 60.70$

Industry EBIDTA 40.10%

2011 2012 CAGR

Stock Wireless 9855.5M$ 9510.90M$ -2.40%

Roaming cost (7.7% total) 1356.2M$ 1583.6M$

Roaming growth 16.20% 16.80%

Data 5066.4M$ 6257.9M$

Data growth 30.40% 23.50%

Telephony (25.74%)

Revenue 11.3G$, down -6%

Revenue CAGR -4.80%

volume -0.027

volume CAGR -0.016

Consumer volume CAGR

Vidotron 1.70%

RCI -1.40%

Shaw -1.50%

Cogeco -0.40%

BCE 3.90%

Internet and Data (28.26%)

Revenue 12.20G$, up 5.2%

Revenue CAGR 4.10%

COMMUNICATIONS INDUSTRY60.7G$, up 2.3%

CAGR: 2.9%

BROADCASTING16.8G$(27.68%) , up 1.4%

CAGR: 4.7%

TELECOMMUNICATIONS43.9G$(72.32%) , up 2.7%

CAGR: 2.2%

CAGR23.5%

Industry Cycle 2011-2012CAGR 2008-2012 (according to CRTC)


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Appendix10:PorterAnalysis

1) Threat of new Entrants :- High entry barrier- Economy of scale- New technologies

2) Bargain power of suppliers- High Variety of phones suppliers- High Government Bargain power

3) Bargain power of buyers- Oligopoly

4) Competition- Big companies competitors- New technologies

5) Threat of substitute- Skype, Viber


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Disclosures:Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this

company.

The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest

that might bias the content or publication of this report.

Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as a officer or director:

The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the

subject company.

Market making:

The author(s) does not act as a market maker in the subject companys securities.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed bythe author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to itsaccuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any personor entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sellany security. This report should not be considered to be a recommendation by any individual affiliated with CFA Montral,CFA Institute or the CFA Institute Research Challenge with regard to this companys stock.

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