BCE Inc.

BCE Inc. (TSX: BCE) is one of Canada’s leading communications companies, which provides advanced Bell broadband wireless, TV, Internet and business communications services alongside Canada’s premier content creation and media assets from Bell Media.

Key Updates:

• Industry Beating Margins: The company higher margin than the industry median, which indicates higher operational efficiencies. Notably, during Q3FY21, EBITDA margin and operating margin stood at 43.8% and 23.3%, respectively, higher than the industry median of 35.1% and 12%, respectively. Moreover, the company reported its net margin at 13.9% in Q3 FY21, as compared to the industry median of 7.8%.
  

• Impressive dividend yield: Despite the sluggish economic scenario, the company reported a higher dividend distribution of CAD 2,337 million in 9MFY21, as compared to CAD 2,222 million in pcp. Notably, the stock of BCE is carrying a dividend yield of ~5.462% on an annualized basis, which looks attractive considering the ongoing interest rate scenario.
  

• Improved performance from media segment, supported by 18.6% jump in advertising segment: The company reported improved traction from the advertiser demand due to new fall TV season, upside from federal election coupled with the resumption of regular sports schedule and other live events. Notably, media operating revenue increased 14.5% on y-o-y basis in Q3FY21 to CAD 719 million.

Q3FY21 Financial Results:

• BCE announced its quarterly result, wherein the company posted its operating revenues of CAD 5,836 million, marginally improved from CAD 5,787 million in the previous corresponding period (pcp), aided by a 3.6% y-o-y growth in service revenue to CAD 5,099 million, while a lower product income remained as a drag.
• Adjusted EBITDA was recorded at CAD 215 million, climbed 20.8% on y-o-y basis. This was driven by elevated revenue, while a 12% increase in operating costs reflecting more live sports events and TV programming compared to pcp, related TV production shutdowns remained as a drag.
• The company reported Net earnings of CAD 813 million, surged from CAD 740 million in pcp, supported by a gain on realized on the sale of Bell data centres to Equinix in Q4FY20 coupled with lower non-cash media asset impairment charges and decreased income taxes from the previous corresponding quarter.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The sector requires huge capital investments, and a delay in project execution might dampen the company’s return ratios. Moreover, a change in consumer preference might be alarming and might impact the demand for the company’s products.

Valuation Methodology (Illustrative): Price to Earnings-based

Stock Recommendation

FY21 is expected to end on a positive note, and the management expects its annual revenue to grow by 2% to 5%, while Adjusted EPS is expected to be higher by 1% to 6%. The company expects its free cash flow to be between CAD 2,850 million to CAD 3,200 million. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered industry (telecommunications services) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BCE at the last trading price of CAD 65.84 on December 03, 2021.

1-Year Price Chart (as on December 03, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.