BCE Inc.

Early Redemption of 3.15% Debentures: BCE Inc. (TSX: BCE) is a wireless and Internet service provider, offering wireless, broadband, television, and landline phone services in Canada. As on 31 August 2020, the market capitalization of the company stood at ~CAD 50.69 billion. The company has announced that it will redeem its CAD 750 million 3.15% of series M-30 debentures on 14 September 2020, prior to its maturity on 29 September 2021.

Positive Long Term Fundamentals: During the second quarter ended 30 June 2020, the company reported an increase of up 22.4% in cash flows from operating activities to CAD 2,562 million and ample financial flexibility with liquidity of CAD 5.4 billion. Despite a significant reduction in commercial activity, the company added 50,121 total wireless, retail Internet and IPTV net customers, surpassing 10 million wireless subscribers. However, the company witnessed a decline of 9.4% in adjusted EBITDA and a fall of 31.8% in adjusted net earnings to CAD 573 million. During the quarter, the company launched Canada's largest mobile 5G network and increased its broadband wireless and wireline market share. The company remains confident in the long-term fundamentals and performance, including a healthy balance sheet and substantial free cash flow generation, offering considerable financial flexibility to navigate the COVID-19 recovery.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The investment is inherent to risks and uncertainties, giving rise to possibilities that the actual result might differ from the expectations. The severity of COVID-19 can have adverse impacts and may lead to the failure to maintain operational networks with regards to significant increases in capacity demands.

Stock Recommendation: Bell's performance in Q2 underscored the scale and resiliency of networks and the strength of financial foundation. The company is likely to generate operating momentum and maintain financial flexibility. As per TSX, the stock of BCE is trading slightly above the average 52-weeks’ trading levels and retains potential for further growth. Further, at the last traded price the stock was offering a dividend yield of 5.97%, which is lucrative considering the current interest rate environment. On a TTM basis, the stock of BCE is trading at an EV/EBITDA multiple of 8.4x, lower than the industry average (Telecommunications Services) of 13.7x and thus seems undervalued. Considering the current trading levels, resilient financial performance and expanding market share, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 55.74 on 1 September 2020.

BCE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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