1. A McMaster Investment Club Stock Pitch

2. Rating : BUY Market Capitalization 4001.4M Enterprise Value 9772.5M
LTM EBITDA
1503.9M
LTM Net Income
252.1M
Net Debt/EBITDA
3.26x
We believe Quebecor to be an excellent fit to the McMaster Investment Club’s equity portfolio. Based of off two core theses, Quebecor bodes as a prime investment opportunity over the club’s long-term investment horizon.
A summary theme of this investment pitch is growth at a discount.
Theses
Videotron holds strong growth potential in the Canadian Telecom Market, an otherwise saturated industry
The market discounts Quebecor at a heavy holdings discount, a discount that we will see reduced over our investment horizon

3. Quebecor An Overview Overview Thesis I Thesis II Valuation Risks
Catalysts
Portfolio

4. Executive Overview
Quebecor (TSX: QBR.A, QBR.B) is a Canadian leader in telecommunications that is firmly based in Quebec and owns 75.36% in Quebecor Media  a Canadian media company with majority ownership in Videotron, TVA Group and Archambault
QBR.A = Class “A” shares – 10 Voting Rights
Majority owned by Pierre Karl Paladeau
QBR.B = Class “B” shares – 1 vote
Overview
Holdings
MGMT

5. Holdings Overview
Overview
Holdings
MGMT
Videotron is a Canadian telecommunications company integrated in television, wireless and internet services
Canoe.ca provides news and entertainment via their online website
Distribution Select is a Canadian record and video distributor
Groupe Livre is a publishing company held by Quebecor Media
BlooBuzz is a video game publisher and developer that designs games for a variety of platforms
Archambault is a major retailer of music, books, DVDs and games in the province of Quebec
Le Superclub Videotron is the largest remaining video store in Canada - concentrated in Quebec
TVA Group is a Canadian communications company operating in broadcasting, publishing and production
TVA Publications is a Quebec based magazine publishing company

6. CEO of Quebecor Media Group Jean-François Pruneau
Management Overview
Overview
Holdings
Pierre Dion
President and CEO
April 2014 to Present
Policy Goal:
“Our vision is to provide Canadians with a new high quality, low-cost wireless choice and real wireless competition. ”
“... Under the right conditions, we are ready, willing and able to become Canada’s fourth wireless competitor.” -
The 2014 Canadian Telecom Summit
Manon Brouillette
CEO of Videotron
May 2013 to Present
Policy Goal:
Room to gain market share in Quebec and Canada is optimistic toward increasing mobile Internet usage
“In the rest of Canada, we would be a pure-play wireless carrier, but we feel there is a place for us. But we need the appropriate conditions.” -
The Globe and Mail October 2014
Julie Tremblay
CEO of Quebecor Media Group
Sept 2013 to Present
Benoit Robert
Head of Sports & Entertainment
August 2014 to Present
MGMT
Valuable Insight – their backgrounds, proven successes and strategic policies
France Lauzière
Senior VP - Content QMI
Feb 2013 to Present
Jean-François Pruneau
CFO of Quebecor
Nov 2010 to Present

7. The CRTC is calling…Will Vidéotron Answer?
Overview
Thesis I
Thesis I: VideoTron Holds Immense Growth Potential in the Telecom Space
Thesis II
Valuation
The CRTC is calling…Will Vidéotron Answer?
Risks
Catalysts
Portfolio

8. Thesis I: Videotron – A Growth Story In A Limited Growth Sector
Quebecor Media’s Videotron – A small telecommunications company located in Quebec, has shown immense growth potential from the start of its facilities-based approach in Based off of two historical core competencies and a competitive advantage amongst smaller players, we believe the VideoTron may be positioned to become – in some capacity - Canada’s 4th national Telecom player. Management prudency coupled with favorable regulatory body support will mitigate uncertainty risk.
If a national expansion is not seen by management as a viable option, the Quebec Wireless market is still a prime opportunity for growth
Overview
Thesis I
Thesis II
Valuation
Risks
Catalysts
Portfolio

9. Macro Outlook – Higher Yielding Telecoms Will Be Pressed For Growth In High Interest Rate Environment
Pre-interest rate drop in 2008 yields on the 10 year treasury performed in line with most Canadian Telecom dividend yields
However post-2008 until present, spreads have increased dramatically
As of January 5th spread between the 10 Year treasury and Rogers (lowest yielding telecom) is ~1.68%
Macro I II
III
Expansion
Case
Valuation remains elevated - RBC
Quebec
If we see hawkish interest rate sentiment in 2015 there is a possibility of marginal fixed income investors exiting the sector in favor of high yielding treasuries
Quebecor is not amongst the higher yielding stocks of the telecom sector which means fixed income investors have not artificially inflated the price of the stock

10. Argument I: Proven Competence In Strategic Investments
Videotron penetrated the competitive market of Quebec in 2010 through a facilities based approach. To date, the ~$1B investment has returned massive gains in subscribers with only a minimal loss in revenues per customer.
MAcro
Facilities-based approach was first piloted in September 2010
Incumbents ruled over 90% Quebec's market share
CAPEX reached over 1B
LTE network established September 10th 2014
Since facilities-based approach, gross wireless subscribers has seen immense growth, with only marginal loss in ARPU
Indicates minimal loss in profitability per subscriber I II
III
Expansion
Case
Q Quebecor Conference Call
Churn data – TD November 7th Equity Research Report
Quebec
Mobile Telephony Subscribers vs. Mobile Telephony ARPU. QBC Quarterly Reports

11. Argument I: Bundling, Exclusive Content & Quebecois Identity
Profitable expansion and impressive growth can be attributable to the bundling marketing tactic - essentially synergizing subscriptions in Cable, Internet, and Wireless
Allows customers access to TVA exclusive content
According to the Q Conference Call
81% of residential customers bundling 2 or more services
14% of residential customers bundling 4 services
MAcro I II
III
TVA holds exclusive content rights to some of the most popular Francophone TV entertainment
Francophone Entertainment
Salut! Bonour
Francophone Sports
QMJHL
Expansion
Case
Q Quebecor Conference Call
Churn data – TD November 7th Equity Research Report
Quebec
Quebecor’s strong Quebecois identity makes it marginally more appealing to native Quebcecois.
Dates back to the CEO Pierre Karl Paladeau (PKP)
Fervant Quebec patriot and recent separatist
Bankrupt global subsidiary whose demise was allegedly blamed on the English Canadian business establishment

12. Addition to Shareholder Value Additional Information
Argument II: Proven Strategic Spectrum Acquisition
Quebecor has a history of strategically acquiring valuable spectrum that has proven accretive to shareholder value
Spectrum Auction
Licences Bought
(Purchase Price)
Spectrum Information
Addition to Shareholder Value
Additional Information
AWS -3 Auction
(May 2008) 17
$1.26/MHz/POP
Provides services in 3G+, HSPA and LTE
Modern form of transferring wireless communication
Matches the other telecoms in speed and service
Greater coverage in Quebec than any other competitor
One license in the GTA and later sold to Rogers for $180M
Cooperation with Rogers to produce wireless networks in Quebec and Ottawa
700 MHz Auction (January 2014) 7
$0.83/MHz/POP
Former analog TV spectrum
Greater penetration and greater length
Cannot sell spectrum for 5 years
Saves money on infrastructure and upkeep
Potentially attracting more consumers
Bought 2 licenses in Alberta and BC
Bought two licenses in Eastern and Southern Ontario
Similarly to AWS, may sell
2500 MHz Auction
(Est. Q2 2015)
TBD
Enhances existing AWS spectrum by providing more reliability
Potentially decrease existing costs
Possible sale in the future to incumbents
Deemed to be less valuable than 700 MHz
60% to be auctioned to new entrants
Macro I II
III
Expansion
Case
Valuation remains elevated – RBC
Price per MHzPop Multiple = Sales Price / (MHz of license x population covered) - See more at:
Quebec

13. Argument III: Competitive Advantage -Highest Accessibility to Capital Amongst New Entrants
Videotron has the highest accessibility to capital amongst new entrants. This is a necessity for a fourth national player to acquire spectrum, as well as build wireless networks
Entrant
Location
Cash
Debt
Equity
Other
Primarily concentrated in Quebec
$476.6M in cash as of Dec 31, 2013
Ability to take on the most long term debt
Revolving credit facility
QMI – BB grade
Possible spinoff of Videotron
Secondary offering
Sale of several spectrums outside of Quebec
Concentrated in Ontario and Western Canada
In search of a potential buyer in order to facilitate future spectrum purchases
$62 Million deposit by supreme court
Under creditor protection
Currently looking for a buyout from a foreign company
Filed with the Ontario Superior Court of Justice to gain DIP by January 30th
Toronto – Specifically GTA
Globalive is potential funder of spectrum capital
Plans to complete at least $33M for spectrum funding
$160M of debt outstanding
Globalive bought out Vimpelcom’s majority stake to recapitalize WIND
Cordova is returning WIND to “normal” investment strategy
Macro I II
III
Expansion
case
Valuation remains elevated – RBC
At least $ , given their PE firm has about 2.5 billion dollars in assets, I think we can assume less than 100 mil
Quebec

14. Comparable Plans of Big 3 - Talk, Text and 2 GB data
National Expansion : Ontario – The New Battleground
We believe Ontario to be the area where VideoTron will make its first entrance as a national player. Ontario is vulnerable to a new entrant due to a lack of competition, inherent in its price discrepancies with neighbouring provinces
Macro
A sufficient price discrepancy exists between neighbouring provinces as seen in the pricing of Talk, Text and 2GB Data plans
In Quebec and Manitoba, incumbents are challenged by MTS and Videotron
In Ontario, WIND and Mobilicity are not sufficient competition to challenge the Big 3
Comparable Plans of Big 3 - Talk, Text and 2 GB data
Ontario
Quebec
Manitoba
Rogers 90 75 60
Telus 70 55
Bell I II
III
Rogers/Bell/Telus Websites. Wireless Plans
Expansion
Partnerships
Pierre Dion has had numerous talks with WINDs mobile CEO Pietro Cordova throughout 2014
Non-Disclosure agreement signed with Mobilicity
In 2013 the wireless penetration rate stood at 83.9% for Ontario
Signals room for the market to grow
case
Quebec
“Today we have an attitude of keeping our head down and working hard to pursue our objectives, and if one of the solutions is a deal with Mobilicity or Quebecor, so be it.”
Pietro Cordova – WIND Mobile CEO
Ontario Wireless Service Subscriber Market Share. CRTC ‘14 Annual Report

15. Case Study : Free Mobile
Free Mobile, a new mobile entrant in France, managed to capture an impressive market share of 5.4% (2.6 million subscribers) within 6 months of launching.
Sentiment
Since 2000, ARCEP supported a 4th competitor in mobile market: France’s ARPU was significantly higher than anywhere else in the world
49 – 90 £/month for 2 year contracts
4th 3G spectrum license up for application – only Free Mobile submitted a qualified application
Met minimum build regulations
Roaming agreement with Orange
Mirrors CRTC sentiment toward big 3 and prospect of 4th competitor
Reserved spectrum for Videotron, obtained at a heavy discount compared to big 3
Rogers – $3291 M
TELUS – $1142 M
Bell – $566 M
Videotron - $233 M
Macro I II
III
Expansion
Case
Many parallels exists between Free Mobile and Quebecor – suggesting feasibility of Videotron as a 4th competitor in Canada
It purchased spectrum, met minimum build regulations with a network that covered about a third of the population and struck a roaming agreement with Orange to serve customers when they were outside its coverage area.
(3 competitors is not healthy for consumers)
(were able to meet demands of coverage, quality service, consumer relationship, environmental protection)
Quebec

16. Case Study : Free Mobile
Entrance
Prior to launching, Free Mobile signed roaming agreement to use Orange’s network at wholesale price
MVNO (mobile virtual network operator)
Free Mobile doesn’t own the network infrastructure it uses to service customers
It allows Free to quickly penetrate region and expand coverage
Orange also gets to hedge against success of Free on prevailing mobile giants
Free would not be able to offer aggressive prices without agreement
Macro I II
Offering a “same service, lower price” model
Free mobile attracted customers with a 20€/month plan that competitors were pricing at 40£/month
Huge price disparity between Canadian provinces can be exploited
Low cost structure
Online based, no retail stores
We believe that the Canadian incumbents are in the same state as the incumbents in France
Increased competition will put pressure on subscriber additions and/or put pressures on ARPU
III
Expansion
Case
MVNO = operator doesn’t own the network infrastructure, it pays a wholesale price to the network owner, and resells it to its customers
Quebec

17. Case Study : Free Mobile
Aftermath
Hugely popular for consumers, it acquired 5.4% market within 6 months
Equalled share held by all other French MVNO combined
Resulted in price wars within mobile market – the ultimate goal of the regulatory body
Other mobile services suffered equally
Responded by launching low cost operators under parent company
Orange (Sosh), SFR (Red), Bouygues (B&You)
Macro I II
III
Expansion
Case
Quebec

18. Quebec: A Growth Market
Should Quebecor choose not to follow through with national expansion, we believe that it still has large potential for growth in the Quebec market
Macro
LTE Penetration
Relative to the other more populated provinces Quebec has a lower LTE penetration rate – meaning a sufficient amount of the population is not accessing the LTE network
Videotron has the largest LTE coverage spanning the St. Lawrence Channel (one of the most population dense areas in Canada) I II
III
Expansion
Case
Quebec

19. Thesis II: Short-Term Market Discounts
Overview
Thesis I
Thesis II
Thesis II: Short-Term Market Discounts
Valuation
Unjustified Discounts Compressing Extrinsic Value
Risks
Catalysts
Portfolio

20. Thesis II: Market’s Short-term Oriented Discounts
Overview
Thesis I
Thesis II
Quebecor’s extrinsic value is being inhibited due to a short-term oriented market holdings discount. This holdings discount is only applicable in the near-term investment horizon, as relative leverage levels remain unsatisfactory and Quebecor Media is not wholly owned. In our investment horizon we are to see either the buyout of minority interests or an equity carve out (ECO) which will both raise cash on hand to increase dividend yield.
Valuation
Risks
Catalysts
Portfolio

21. Argument I: Higher Relative Leverage
A higher than average leverage ratio is forcing the market to compress the stock price in the short term. However, Quebecor is in the process of aggressive debt pay down which will bring leverage ratios down to previous satisfactory levels
Debt
Pre-CDP Stake Buyout
Buyout
Management has lowered Net Debt/EBITDA since 2008.
Spike in October 2012 due to a large buyout of NCI
3.47 Interest coverage ratio shows no threat of illiquidity
Aggressive debt pay down indicates that management has committed to debt management
Valuation remains elevated - RBC
Future aggregate principle amounts due indicate an adequate amount of time to build FCF to pay off debt
The present low-interest rate environment is a prime opportunity to refinance debt at lower rates
2014
2015
2016
2017
2018
>2019
101.2
212
480.4
454
362.8
3938.9

22. Holdings Discount Removal: Buyout of Minority Interest & Equity Carve-Out
A large holdings discount severely reduces Quebecors share price. A buyout of minority interests would see this discount removed. CDP holds exit rights which could also see an equity carve-out.
October Quebecor increased its stake in Quebecor Media to 75.4% from 54.7%
Net Debt/EBITDA was 2.5x
Potential to buyout remaining interest when leverage ratio returns to pre-agreement levels
Debt
January 1st, According to the 2012 agreement, CDP will have exit rights or the opportunity to take their interests in Quebecor Media Public
An equity carve-out would give opportunity to:
Pay down debt
Raise dividend
Revalue holdings company
Buyout
Historical Case
Spanish bank Santander bought out minority stake (25%) in Santander Brazil to improve underperforming subsidiary
Historical Case
Thermo Electron made twelve ECO throughout the timespan of sixteen years
2500% increase in market value
Maintained majority ownership in all spin-offs

23. Valuation The Numbers Story Overview Thesis I Thesis II Valuation
Risks
Catalysts
Portfolio

24. Discounted Cash Flow - Assumptions
DCF
COMPS
Valuation remains elevated - RBC

25. Discounted Cash Flow - WACC
DCF
COMPS
Valuation remains elevated - RBC

26. Discounted Cash Flow – Stock price Calculation
DCF
COMPS
Valuation remains elevated - RBC

27. Discounted Cash Flow – Sensitivity Analysis
DCF
COMPS
Valuation remains elevated - RBC

28. Public Company Comparable Analysis
DCF
COMPS
Valuation remains elevated - RBC

29. Public Company Comparable Analysis
DCF
COMPS
Discounted Cash Flow
Valuation remains elevated - RBC

30. Risks to Our Investment Theses
Overview
Thesis I
Thesis II
Risks
Valuation
Risks to Our Investment Theses
Risks
Catalysts
Portfolio

31. Thesis I: Risks Risk Mitigant Expansion is a failure
Clearwire corporation, expanded in US to provide broadband.
Operating loss of $7.1B over 6 years
Invested in 4G instead of LTE
$35/share  $1.07/share
Government support
Clearwire had no government support and undertook a costly investment based approach with obsolete technology. Videotron is heavily back by the CRTC to subsidize costs in spectrums. We believe Videotron will take a hybrid MVNO/investment based approach once the whole wireless roaming rates are lowered, consequentially lowering barriers to entry
4 player model has consistently failed in developed nations
Australia: 4  3
Japan: 5  3
US: ATT, VZ, TMUS
The Canadian government (through Industry Canada and the CRTC) favor a 4th telecommunications player. They will take measures to ensure it does not fail.
Balance sheet not strong enough to finance expansion
Ability to sell off non-core assets to fund expansion
Thesis I
Thesis II
Valuation remains elevated - RBC

32. Thesis II: Risks Risk Mitigant Interest Rate Hike
81.6% of Quebecor’s debt is a at a fixed rate
Quebecor Media ECO is a failure
Quebecor will decide how many of their shares to take public
Increase in leverage before QBA is able to buyout minority interests
Aggressive paydowns of current debt will be brining down leverage ratios
Thesis I
Thesis II
Valuation remains elevated - RBC

33. Drivers to Our Investment Theses
Overview
Thesis I
Thesis II
Catalysts
Valuation
Drivers to Our Investment Theses
Risks
Catalysts
Portfolio

34. Thesis I: Catalysts Catalyst Result
Aggressive purchases of discounted spectrum in national auction
Valuable spectrum purchased which can be utilized for new networks or sold for a significant premium
Wind / Mobilicity / Videotron partnership
Possible Ontario and Western Canadian expansion with low upfront CAPEX and barriers to entry
Heavy divestitures from News Media
More cash on hand to devote to Videotron
Thesis I
Thesis II
Valuation remains elevated - RBC

35. Thesis II: Catalysts Catalyst Result
Further decreases in interest rates
Lower free cash flow towards interest payments
Decrease in promotions and pricings in the mobile wireless market
Higher ARPU and EBITDA margins
Faster paydown of long term debt
Buyout of minority interests faster than expected
Quebecor Media ECO is a success
A large amount of cash would be raised which could be used to raise dividend payments
Buyout of CDP minority interests
Removal of the market’s large holdings discount
Thesis I
Thesis II
Valuation remains elevated - RBC

36. The Fit into the McMaster Investment Club Portfolio
Overview
Thesis I
Thesis II
Portfolio
Valuation
The Fit into the McMaster Investment Club Portfolio
Risks
Catalysts
Portfolio

37. The McMaster Investment Club Portfolio
Valuation remains elevated - RBC
Summary
Add QBA to portfolio to offset the aggressive Beta of Transglobe
Arbitrary portfolio beta of 0.6 chosen, but variant depending on consensus of club members