UQAM CFA ResearchChallenge2014

CFA Institute Research Challenge hosted by

Local Challenge Montreal CFA Society Université du Québec à Montréal

Université du Québec à Montréal Student Research This report is published for educational purposes only by students competing in the CFA Institute Research Challenge.

Date: 22/01/2014 Ticker: QBR.B-CA (FactSet) Valuation

DCF

Multipliers

Estimated price 40.73 26.4 Weights 50% 50% Target Price 33.57$ Source: Team estimates

Average Daily Vol (3Mo) Market Value (M)

Quebecor Inc.

Current Price: 25.43$

Change in forecast level of WACC

7.00% 7.50% 8.00% 8.22% 9.00% 9.50% 10.00%

Recommendation: BUY Target price: 33.57$

Change in forecast level of Terminal FCF Growth

0.00% 45.61 40.49 36.03 34.24 28.61 25.50 22.70

0.50% 50.06 44.27 39.26 37.27 31.04 27.63 24.59

1.00% 55.25 48.63 42.96 40.72 33.78 30.02 26.68

1.50% 61.39 53.71 47.23 44.69 36.89 32.70 29.02

2.00% 68.76 59.72 52.21 49.29 40.44 35.74 31.64

Highlights

Quebecor Inc. 52 Week Range

[Communications Services Industry, Technology Sector]

C$18.8527.40 176,680.1 3,334

Shares Out (M)

123.5

Institutional Holding

67.9%

Net debt/EBITDA 2014E EV/EBITDA 2013E

3.27

EV/EBITDA 2014E

5.81

Total Debt/EV

61.41%

ROE 2014E

11.48%

6.2

Source: Yahoo-Finance, Factset

 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) high discount 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 Québec.  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.

Quebecor monthly stock prices

33.57$

35 30 25

26.58% upside 25.43$

20 Closing Price 15 10

Current Price Target Price

Business Description 7%

Figure 1: Revenue Breakdown LTM

11%

Telecom News Media

20%

62%

Broadcasting Others

Source: Factset

Figure 2: EBITDA breakdown LTM 7%

3% 2%

Telecom News Media

88%

Broadcasting

Others

Source: FactSet

Quebecor 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 dépôt et placement du Québec. Quebecor is one of Canada’s largest telecommunications companies, specializing in telecommunications services, news media and broadcasting. Their head office is in Montreal and the company operates mainly in Quebec 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 company’s 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 Quebec’s best retail telecom for the third year, reflecting the company’s 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 websites combined 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 under 1 way and fully financed by convertible debentures . Market Share price has risen more than 50% since the initial stage of the share repurchase agreement. Pierre Karl Péladeau owns directly and indirectly all of Quebecor's class A shares. Technically, Pierre Karl Péladeau 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.

1

500M$ convertible debentures, 6 years, 4.125% per year, right to convert prior to maturity(cash or share).

Industry Overview and Competitive Positioning Porter’s 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 in EBITDA margin (%) NI margin (%) Telecommunications with quite strict laws. This gave a big edge QBR's 33.13% -5.52% to the big three and helped them keep costs high for smaller competition. Before the newly added cap, local companies paid RCI 39.23% 11.56% more for roaming fees than the American companies borrowing BCE 39.60% 10.82% in that same spectrum. This wasn’t such a big problem for T 35.46% 11.53% Quebecor since they are mainly based in Quebec. Furthermore, until a short while ago, Quebecor wasn’t expected to try to 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). There’s no doubt that bundling services need to be offered to enter the market and attract customers, but it’s difficult when the appropriate content is not available.

Figure 3: Peers basics statistics for 2013E

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 Canadian Telecommunications 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. There’s 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, longdistance calls. TV substitutes – Apple 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 optic fiber 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.

Communications Industry 2008-2012 Revenue CAGR

8.00%

6.20% 6.00%

4.70%

4.10%

4.00% 2.00% 0.00% -2.00%

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 cost had a CAGR 2008-2012 of 23.5% while the stock wireless decreased 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.

-4.00% 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, Industry Revenue … offer multiple services, but unlike the others, they offer eight weeks of Source: CRTC extensive 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 Industry Revenue growth Quebecor customer calls customer service, his call is answered within 30 seconds (according to QBR's CFO). ''Not surprisingly, Videotron 2012 5.20% 6.00% was ranked the most respected telecommunications provider in Québec for the seventh consecutive year by Les Affaires magazine, 4.00% 2.70% 2 based on a Léger Marketing survey'' . Also, this customer will not be 1.40% transferred to different departments, but will have all of his problems 2.00% directly solved through this one person who responds. Another of 0.00% Quebecor’s strong competitive advantages consists of their bundling effect. Over the years they have been gaining a lot of three- and -2.00% four-services customers (high margin ) and losing one- and twoservices customers (low margin customers). Those customers result -4.00% in a high profit margin as opposed to the 1 & 2 services bundling, -6.00% which now represent less than 20% of their sales. Quebecor has also -6.00% put a lot of effort into diversifying and upgrading their TV content -8.00% over the years. They now own new specialized channels such as TVA Source: CRTC Sports and their own movie distribution program (Illico illimité). TVA is the single most-watched TV channel in the province of Québec 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 Videotron were 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.

-6.00%

2

-4.80%

Vidéotron press release, January 8, 2013.

Source of demand. Quebecor has a very specific niche market by offering French services in the province of Quebec. This French-language 2013E 2014E Wireless ARPU growth 20% 20%* barrier might limit growth, but it is also a protection against outsiders (Netflix). Most of Wireless Subscribers growth 10% 8%* the population of Québec speak only very little Telephony ARPU growth -0.50% -0.50% English and Quebecor has learned how to Telephony Subscribers growth 2% 2% leverage this to their advantage. First, their Illico Internet ARPU growth 4% 4% Illimité service makes a huge variety of movies in French available to any customer. This is also a Internet Subscribers growth 2% 2% way of protecting themselves against the threat Cable TV ARPU growth 2% 2% of Netflix or even the United States TV channels. Cable TV Subscribers growth 1% 1% As for the wireless segment of the company, they are able to offer very competitive products *Not considering any acquisition 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 3 subscription to a telephonic service industry including bundling went up 16.9% from 2008 to 2012 . 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.

QBR's estimated growth

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 doesn’t 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 4 for families living in a more rural environment . Forecast supply 700 MHz. QBR's mobility segment is a major weakness in their network quality compared to their 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 QBR’s more 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.

3 4

QBR's compay report, 2013 http://www.speech.gc.ca/fra/discours-integral

Investment Summary Valuation Estimated price Weights Target Price Source: Team estimates

DCF 40.72 50%

Multipliers 26.40 50% 33.57$

Good entry point. We issue a BUY recommendations for QBR with a target price of 33.57$ and a 26.58% upside potential from current price 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 Québec for the seventh consecutive year by Les Affaires magazine, based on a Léger 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 are no 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 We 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 this PV of Terminal Value 8,163,139 method is suitable since we forecast significant capital Enterprise Value 11,457,544 structure change in future years. According to our DCF analysis, we expect the target price of $40.72 to be reached + Cash and Equivalents 350,000 (For complete calculation, please refer to appendix 5). The - Debt 5,125,500 model is sensitive mostly to the following factors. Minority Interest (24,6% Caisse) 1,643,783 Sales. The anticipated growth in sales is based on historical Equity Value 5,038,261 industry growth according to different segments. We Oustanding Shares 123,700 analyzed all available CRTC growth rates and CAGR to identify current industry trends. Then, taking all factors into account, DCF Value per share $ 40.73 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 Components of WACC (mostly 2014E), will average 800M$ per year(2013E-2018E). Risk free rate 3.19% Sum of PV of Unlevered FCF

3,294,406

Beta

0.75

Market Risk Premium

9.37%

Cost of debt

5.56%

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

Source: Team estimates, market data

EV/EBITDA 2013E

2014E

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

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 details about the components of WACC and its assumptions please refer to Appendix 6.

Canadian Telcos

Source: FactSet, Team estimates EV/EBITDA Valuation

Price

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

$

24.06

50%

$

28.74

50%

Vo QBR's

$

26.40

Source: Team Estimates, FactSet

Ponderation

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 longterm discount observed on QBR's market price relative to its peer group in 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 $33.56 when combined with the DCF using a 50-50 weighting procedure. For complete analysis, please refer to appendix 8.

Financial Analysis

Stable margins (Millions)

6000 5000 4000 3000 2000 1000 0

99.46% 84.46% 69.46% 54.46% 39.46% 24.46% 9.46% -5.54%

Revenue

EBITDA Margin

NI Margin

40.00%

Lower ROE compared to peers

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 details concerning 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).

30.00% 20.00% 10.00% 0.00% 2010

2011

2012

MEDIAN PEER ROE

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 Q1 2013. 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%.

Cash Flow Pattern 2000 1500 1000 500

-1500 -2000

2018E

2017E

2016E

2015E

2014E

2012

2011

2013E

-1000

2010

0 -500

ARPU. We expect the ARPU to increase due to increases in the price and quality 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 shortterm growth but should drive longer-term growth of revenue and 5 EBITDA . 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 Vidéotron’s 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.

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 CFO CFI CFF margin have been declining since 2009 (Gross:24.80% to 18.46%, EBIT: Source: Team Estimates 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 $1439.55M to a 2018E EBITDA of $1950.25M

5

Scotia bank capital investment report

ROE

Dupont Analysis

-17.18%|10.44%

ROA -2.64%|2.35%

ASSET/EQUITY 6.51|4.44

SALES/ASSETS 0.48|0.56 NI/SALES Legend

-5.54%|4.17%

2013E|2018E

Relation of CAPEX to CFO 1500 1000 500

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

0

CFO

CAPEX

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 (20092012), 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. Our analysis 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 (20102012), QBR presented positive CFO and negative CFI due to a high level of CAPEX. Moreover, QBR's cash conversion cycle has 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 coming years (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 the fact 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.

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 Vidéotron. The problem is that the undetermined value that 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 Quebecor’s 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 is very important for the major companies in the entertainment and telecommunications industries to have a growing economy. ECONOMIC RISK: Saturation of market – lower 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 in the province of Quebec are higher than elsewhere in the country. This means that Quebecor, which operates in Québec, 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.

Appendix 1: Statement of financial position Balance Sheet (in millions of dollar) Assets

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

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

8,793

9,039

9,008

9,116

9,225

9,336

9,448

9,561

9,676

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

1,158

1,227

1,225

1,273

1,305

1,337

1,371

1,405

1,440

Total Assets Liabilities & Shareholders' Equity

Total Current Liabilities 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

Appendix 2: Income statement Income Statement (in $) Telecom Segments Wireless Subscribers Subscriber Growth Monthly ARPU ARPU Growth Wireless Sub-total Telephony Subscribers Subscriber Growth Monthly ARPU ARPU Growth Telephony Sub-total Internet Subscribers Subscriber Growth Monthly ARPU ARPU Growth Internet Sub-total Cable TV Subscribers Subscriber Growth Monthly ARPU ARPU Growth Cable TV Sub-total OTHERS Telecom Revenues News Media Broadcasting Leisure and Entertainment Interactive Technologies and Communications Head Office and Intersegments Revenues Cost of Goods Sold (COGS) Gross Income EBITDA EBITDA Margin Depreciation & Amortization Expense EBIT Interest Unusual Expense EBT Income Taxes Tax Rate Minority Interest Expense Net Income Net Income Total Shares NI Margin

2010

2011 136,100

2012

2013E

2014E

2015E

2016E

2017E

2018E

$950,600,000 $151,200,000 $2,209,000,000 $1,034,800,000 $448,200,000 $302,500,000 $98,000,000 -$92,400,000 $4,000,100,000 $2,668,000,000 $930,100,000

290,600 53.17% $32.32 -0.79% $112,700,000.0 0 1,205,300 7.55% $30.16 -1.64% $436,200,000.0 0 1,338,100 6.43% 43.48 1.38% $698,200,000.0 0 1,861,500 2.68% $45.33 3.54% $1,012,600,000 $171,300,000 $2,431,000,000 $1,018,400,000 $445,500,000 $312,900,000 $120,900,000 -$121,800,000 $4,206,900,000 $2,865,000,000 $829,500,000

402,600 27.82% $35.52 9.01% $171,600,000.0 0 1,264,900 4.71% $29.97 -0.63% $454,900,000.0 0 1,394,800 4.07% 46.15 5.79% $772,500,000.0 0 1,855,000 -0.35% $48.52 6.57% $1,080,000,000 $119,000,000 $2,598,000,000 $960,000,000 $461,100,000 $292,500,000 $145,500,000 -$142,400,000 $4,314,700,000 $2,948,000,000 $803,300,000

483,120 20.00% $39.07 10.00% $226,512,000.0 0 1,290,198 2.00% $29.82 -0.50% $461,678,010.0 0 1,422,696 2.00% 48.00 4.00% $819,468,000.0 0 1,873,550 1.00% $49.49 2.00% $1,151,886,233 $82,667,834 $2,659,544,243 $904,948,940 $477,246,263 $273,430,010 $175,105,459 -$145,248,000 $4,345,026,914 $2,905,479,389 $1,439,547,525

579,744 20.00% $42.20 8.00% $293,559,552.0 0 1,316,002 2.00% $29.67 -0.50% $468,557,012.3 5 1,451,150 2.00% 49.92 4.00% $869,291,654.4 0 1,892,286 1.00% $50.48 2.00% $1,228,557,310 $57,428,326 $2,917,393,855 $853,054,774 $493,957,916 $255,603,317 $210,734,858 -$148,152,960 $4,582,591,760 $3,022,746,632 $1,559,845,128

666,706 15.00% $44.73 6.00% $357,849,093.8 9 1,342,322 2.00% $29.67 0.00% $477,928,152.6 0 1,480,173 2.00% 51.92 4.00% $922,144,586.9 9 1,911,208 1.00% $51.49 2.00% $1,310,331,715 $39,894,751 $3,108,148,299 $804,136,472 $511,254,759 $238,938,863 $253,613,911 -$151,116,019 $4,764,976,285 $3,115,982,820 $1,648,993,465

733,376 10.00% $47.41 6.00% $417,252,043.4 7 1,369,168 2.00% $29.67 0.00% $487,486,715.6 5 1,509,776 2.00% 53.99 4.00% $978,210,977.8 8 1,920,764 0.50% $52.26 1.50% $1,397,549,133 $27,714,392 $3,308,213,262 $758,023,383 $529,157,283 $223,360,874 $305,217,734 -$154,138,340 $4,969,834,196 $3,226,233,736 $1,743,600,460

806,714 10.00% $49.78 5.00% $481,926,110.2 1 1,382,860 1.00% $29.67 0.00% $492,361,582.8 0 1,539,972 2.00% 56.15 4.00% $1,037,686,205. 33 1,930,368 0.50% $53.04 1.50% $1,490,571,859 $19,252,847 $3,521,798,604 $714,554,642 $547,686,696 $208,798,516 $367,321,590 -$157,221,106 $5,202,938,941 $3,357,160,120 $1,845,778,821

855,117 6.00% $52.27 5.00% $536,383,760.6 7 1,396,689 1.00% $29.67 0.00% $497,285,198.6 3 1,570,771 2.00% 58.40 4.00% $1,100,777,526. 62 1,940,020 0.50% $53.84 1.50% $1,589,786,300 $13,374,715 $3,737,607,501 $673,578,610 $566,864,951 $195,185,573 $442,061,963 -$160,365,529 $5,454,933,070 $3,504,679,902 $1,950,253,168

$1,332,100,000 33.30% $422,400,000 $909,700,000 $282,700,000 $4,200,000 $622,800,000 $156,400,000 25.11% $236,500,000 $230,100,000

$1,341,900,000 31.90% $512,200,000 $829,700,000 $327,000,000 -$17,800,000 $520,500,000 $141,400,000 27.17% $182,000,000 $201,000,000

$1,366,700,000 31.68% $600,300,000 $766,400,000 33350000000% $114,000,000 $318,900,000 $100,100,000 31.39% $99,800,000 $167,700,000

$1,439,547,525 33.13% $686,000,000 $753,547,525 $380,000,000 $675,000,000 -$301,452,475 -$75,363,119 25.00% $60,900,000 -$240,552,475

$1,559,845,128 34.04% $720,300,000 $839,545,128 $414,200,000 $0 $425,345,128 $110,589,733 26.00% $130,000,000 $184,755,395

$1,648,993,465 34.61% $756,315,000 $892,678,465 $451,478,000 $0 $441,200,465 $119,124,126 27.00% $130,000,000 $192,076,340

$1,743,600,460 35.08% $794,130,750 $949,469,710 $492,111,020 $0 $457,358,690 $123,486,846 27.00% $130,000,000 $203,871,843

$1,845,778,821 35.48% $833,837,288 $1,011,941,534 $536,401,012 $0 $475,540,522 $128,395,941 27.00% $130,000,000 $217,144,581

$1,950,253,168 35.75% $875,529,152 $1,074,724,016 $584,677,103 $0 $490,046,913 $132,312,667 27.00% $130,000,000 $227,734,247

$230,100,000 130 5.75%

$201,000,000 128.8 4.78%

$167,700,000 132.2 3.89%

-$240,552,475 123.7 -5.54%

$184,755,395 142.7 4.03%

$192,076,340 138.5 4.03%

$203,871,843 136.8 4.10%

$217,144,581 134 4.17%

$227,734,247 132.2 4.17%

$32.57 $53,200,000.00 1,114,300 $30.65 $409,900,000.0 0 1,252,100 42.88 $644,300,000.0 0 1,811,600 $43.73

Appendix 3: Statement of cash flows Statement of cash flow (in millions of dollar) Operating Activities Net Income / Starting Line Depreciation, Depletion & Amortization Deferred Taxes & Investment Tax Credit Other Funds Funds from Operations Changes in Working Capital Net Operating Cash Flow

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

230.1 402.2 100.0 222.4 954.7 -109.5 845.2

201.0 512.2 159.1 146.2 1,018.5 -152.2 866.3

167.7 600.3 43.1 186.2 997.3 125.3 1,122.6

-240.6 686.0 100.7 184.9 731.1 -113.0 618.1

184.8 720.3 100.7 184.9 1,190.7 -223.8 967.0

192.1 756.3 100.7 184.9 1,234.1 187.6 1,421.6

203.9 794.1 100.7 184.9 1,283.7 -93.4 1,190.2

217.1 833.8 100.7 184.9 1,336.6 -105.2 1,231.5

227.7 875.5 100.7 184.9 1,388.9 -166.8 1,222.1

Investing Activities Capital Expenditures From Fixed Assets Capital Expenditures from Others Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Other Funds Net Investing Cash Flow

-707.1 -113.9 -3.1 0.0 30.0 54.7 -739.4

-781.0 -91.6 -55.7 12.0 0.0 3.2 -913.1

-710.6 -94.9 -1,002.0 8.4 0.0 17.2 -1,781.9

-670.0 -100.1 -4.0 136.7 0.0 25.0 -612.4

-1,246.0 -100.1 -36.0 10.0 0.0 25.0 -1,347.1

-792.0 -100.1 -4.0 12.0 0.0 25.0 -859.1

-831.6 -100.1 -4.0 8.0 0.0 25.0 -902.7

-873.2 -100.1 -4.0 10.0 0.0 25.0 -942.3

-916.8 -100.1 -4.0 12.0 0.0 25.0 -983.9

Financing Activities Cash Dividends Paid Change in Capital Stock Issuance/Reduction of Debt, Net Other Funds Net Financing Cash Flow

-12.9 0.0 -74.8 -74.4 -162.1

-12.8 -30.2 199.1 -205.7 -49.6

-12.6 -34.7 873.4 -84.5 741.6

-12.4 83.2 6.5 -121.5 -44.2

-12.5 12.6 396.5 -121.5 275.1

-12.7 36.7 304.6 -121.5 207.1

-12.8 -31.5 -68.7 -121.5 -234.5

-12.8 -128.1 447.0 -121.5 184.7

-12.9 -197.9 267.7 -121.5 -64.6

-1.0 0.0

0.1 0.0

0.0 0.0

0.0 0.0

0.0 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

Exchange Rate Effect Miscellaneous Funds

Appendix 4: Key Financial Ratios Key Financial Ratios Profitability Ratios ROE (%) ROA (%) ROS (%) Return on Invested Capital (%) Cash Flow Return on Invest Capital (%) Gross Margin (%) Operating Margin (%) Pretax Margin (%) Net Profin Margin (%) EPS (recurring) EPS (basic) EPS (diluted) Liquidity Ratios Current Ratio Quick Ratio Cash Ratio Efficiency Ratios Total Asset Turnover (ATO) Fixed Asset Turnover Working Capital Turnover Receivable Turnover Days of Sales Outstanding Inventory Turnover Days of Inventory on Hand Payables Turnover Days of Payables Outstanding Cash Conversion Cycles (Days) Credit Analysis Net Debt/EBITDA (x) Net Debt/(EBITDA-Capex) (x) Total Debt/EBITDA (x) LT Debt/EBITDA (x) LT Debt/Equity (%) LT Debt/Total Capital (%) LT Debt/Total Assets (%) Total Debt/Total Assets (%) Net Debt/Total Equity (%) Total Debt/Total Equity (%) Net Debt/Total Capital (%) Total Debt/Total Capital (%) Net Debt/FFO (x) LT Debt/FFO (x) FCF/Total Debt (x) CFO/Total Debt (x)

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

17.82% 2.68% 22.74% 4.60% 16.90% 23.17% 22.75% 15.57% 5.75% 1.78 1.79 1.76

14.16% 2.25% 19.72% 3.97% 16.90% 19.72% 19.72% 12.47% 4.78% 1.46 1.57 1.56

14.34% 1.86% 17.76% 3.03% 20.31% 18.46% 18.46% 8.45% 3.85% 1.88 1.33 1.28

-17.18% -2.64% 17.34% -3.69% 10.40% 33.13% 16.83% -6.94% -5.54%

11.48% 2.00% 18.32% 2.70% 15.74% 34.04% 25.98% 9.28% 4.03%

10.37% 2.06% 18.73% 2.67% 21.89% 34.61% 25.90% 9.26% 4.03%

10.01% 2.16% 19.10% 2.84% 18.00% 35.08% 25.83% 9.20% 4.10%

10.15% 2.27% 19.45% 2.87% 18.11% 35.48% 25.69% 9.14% 4.17%

10.44% 2.35% 19.70% 2.95% 17.07% 35.75% 25.46% 8.98% 4.17%

-1.98

1.29

1.28

1.39

1.51

1.61

1.01 0.80 0.21

0.89 0.66 0.12

0.91 0.70 0.19

0.91 0.74 0.27

0.93 0.62 0.12

1.00 0.65 0.34

1.07 0.68 0.35

1.15 0.71 0.35

1.23 0.74 0.33

0.45 1.40 63.59 7.17 50.92 14.59 25.04 3.91 93.46 -17.50

0.47 1.31 -31.56 6.86 53.25 12.77 28.58 4.98 73.30 8.52

0.48 1.27 -38.24 7.12 51.23 13.16 27.73 6.19 58.97 19.99

0.48 1.25 -38.45 7.63 47.85 12.17 29.99 4.67 78.10 -0.25

0.50 1.29 -48.33 7.94 46.00 9.61 37.98 4.87 74.89 9.09

0.51 1.32 -739.26 9.74 37.46 7.12 51.25 4.71 77.50 11.21

0.53 1.35 53.31 12.64 28.88 6.41 56.92 4.77 76.56 9.24

0.54 1.38 25.34 11.98 30.47 5.80 62.91 4.85 75.25 18.13

0.56 1.42 16.47 10.88 33.54 5.27 69.30 4.95 73.70 29.14

2.58 6.90 2.77 2.74 255.00% 71.31% 40.95% 41.36% 240.10% 257.60% 67.13% 72.04% 3.55 3.77 0.04 0.23

2.73 7.80 2.84 2.75 258.60% 70.48% 40.81% 42.12% 256.60% 266.90% 69.94% 72.75% 3.59 3.62 0.02 0.23

3.44 8.08 3.61 3.58 550.10% 84.09% 55.79% 56.20% 529.10% 554.20% 80.89% 84.71% 4.85 5.04 0.08 0.22

3.34 3.31 2.43 2.41 625.06% 85.67% 56.22% 56.63% 586.89% 629.57% 80.44% 86.29% 6.58 7.01 0.09 0.12

3.27 4.94 2.31 2.29 469.30% 81.96% 56.67% 57.07% 458.26% 472.62% 80.03% 82.54% 4.29 4.39 142.27 0.18

2.98 3.05 2.23 2.22 405.83% 79.79% 57.12% 57.52% 374.25% 408.64% 73.58% 80.34% 3.98 4.32 137.45 0.26

2.69 2.75 2.04 2.02 355.09% 77.59% 54.33% 54.72% 324.82% 357.65% 70.98% 78.15% 3.66 4.00 152.51 0.23

2.69 2.75 2.04 2.03 341.84% 76.96% 56.84% 57.23% 312.83% 344.16% 70.43% 77.49% 3.72 4.07 154.26 0.23

2.62 2.67 1.97 1.96 316.98% 75.63% 57.29% 57.68% 291.96% 319.09% 69.66% 76.14% 3.68 3.99 161.44 0.22

Appendix 5: DCF Analysis DCF ANALYSIS Terminal Growth Rate

1%

WACC

8.22% 2014

2015

2016

2017

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

-$700,000

-$792,000

-$831,600

-$873,180

-$916,839

- Capital expenditures + Working capital changes Unlevered Free Cash Flow (FCFF)

-223.75

187.58

-93.43

-105.18

-166.84

749,032 $

738,057 $

788,420 $

844,098 $

900,935 $

Sum of PV of Unlevered FCF

3,294,406 Multiple (From appendix 8)

Price

PV of Terminal Value

8,163,139 Vo QBR's vs S&P 500 Telecom Service

$

24.06

50%

$

28.74

50%

$

26.40

11,457,544 Vo QBR's vs BCE, RCI, T

Enterprise Value - Debt

350,000 Vo QBR's 5,125,500

Minority Interest (24,6% Caisse)

1,643,783

Equity Value

5,038,261

+ Cash and Equivalents

909,944 $

Ponderation

123,700

Oustanding Shares DCF Value per share

2018 Term

$

Appendix 5.1: Sensitivity Analysis

40.72

Change in forecast level of WACC

7.00% 7.50% 8.00% 8.22% 9.00% 9.50% 10.00%

Change in forecast level of Terminal FCF Growth

0.00% 45.61 40.49 36.03 34.24 28.61 25.50 22.70

0.50% 50.06 44.27 39.26 37.27 31.04 27.63 24.59

1.00% 55.25 48.63 42.96 40.72 33.78 30.02 26.68

1.50% 61.39 53.71 47.23 44.69 36.89 32.70 29.02

2.00% 68.76 59.72 52.21 49.29 40.44 35.74 31.64

Appendix 6: WACC Analysis WACC Marginal tax rate

30.0%

Risk free rate

3.19% 9.37%

Market risk premium 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.

Appendix 7: EBITDA Margin by Segment Industry Segments

Telecommunication

News Media

Broadcasting

Interactive Technologies and Communications

Leisure and Entertainment

Head office and Intersegments

Total

(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%

Industry Segments

Telecommunication

News Media

Broadcasting

Interactive Technologies and Communications

Leisure and Entertainment

Head office and Intersegments

Total

(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

Industry Segments

Telecommunication

News Media

Broadcasting

Leisure and Entertainment

Interactive Technologies and Communications

Head office and Intersegments

Total

(in millions of CAN$)

2015E

2016E

2015E

2016E

2015E

2016E

2015E

2016E

2015E

2016E

2015E

2016E

2015E

2016E

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 Entertainment

Interactive Technologies and Communications

Head office and Intersegments

Total

(in millions of CAN$)

2017E

2018E

2017E

2018E

2017E

2018E

2017E

2018E

2017E

2018E

2017E

2018E

2017E

2018E

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%

Appendix 8: Multiples Benchmark Share Price (10JAN)

$

Share out 2013E EBITDA 2013E

S&P 500 Telecom Service 26.52

Benchmark Share Price (10JAN)

123,700,000.00 $

BCE, Rogers, Telus $

Share out 2013E

1,439.55

EBITDA 2013E

26.52 123,700,000

$

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

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

5.89%

7.47%

12.38%

22.41%

-2.89%

-0.72%

3.46%

6.41%

19.66%

19.24%

12.60%

16.98%

Discount

-18.45%

MEDIAN of historical discount

7.47%

Stock is historically trading at 7.47% discount

Current Discount

-1.80%

Currently trading at 1.80% Premium

Discount spread

9.27%

Overvalued

Discount

-4.49%

MEDIAN of historical discount

6.41%

Stock is historically trading at 6.41% discount

Current Discount

14.79%

Currently trading at 14.79% discount

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

Vo P/S

25.57

0%

Vo P/S

24.52

0%

Vo EV/EBITDA

24.06

100%

Vo EV/EBITDA

28.74

100%

0%

Vo P/CF

Vo P/CF Vo

19.92 $

24.06

Vo

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

Ponderation

16.74 $

0% 28.74

2014E

Appendix 9: Communications Industry Overview 2011-2012

Industry Cycle 2011-2012 CAGR 2008-2012 (according to CRTC) COMMUNICATIONS INDUSTRY 60.7G$, up 2.3% CAGR: 2.9%

BROADCASTING 16.8G$(27.68%) , up 1.4% CAGR: 4.7%

Consumer volume CAGR Vidéotron

1.70%

RCI

-1.40%

Shaw

-1.50%

Cogeco

-0.40%

BCE

3.90%

TELECOMMUNICATIONS 43.9G$(72.32%) , up 2.7% CAGR: 2.2% Wireless (46%) Revenue Revenue CAGR Volume Volume CAGR ARPU Industry EBIDTA

20.4G, up 6.5% 6.20% 27.9M, up 1.8% 6.00% 60.70$ 40.10%

Stock Wireless Roaming cost (7.7% total) Roaming growth Data Data growth Revenue Revenue CAGR volume volume CAGR

2011 2012 9855.5M$ 9510.90M$ 1356.2M$ 1583.6M$ 16.20% 16.80% 5066.4M$ 6257.9M$ 30.40% 23.50%

Telephony (25.74%) 11.3G$, down -6%

Internet and Data (28.26%) Revenue 12.20G$, up 5.2% Revenue CAGR 4.10%

-4.80% -0.027 -0.016

CAGR -2.40%

CAGR 23.5%

Appendix 10: Porter Analysis

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

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

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