BCE Inc.

Positive Long-Term Fundamentals: BCE Inc. (TSX: BCE) is both a wireless and Internet service provider, offering wireless, broadband, television, and landline phone services in Canada. As on 7 August 2020, the market capitalization of the company stood at ~CAD 51.30 billion.

Quarterly Performance (For the Period Ended 30 June 2020): 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 significantly 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. Total BCE capital expenditures decreased 6.9% to CAD 900 million due to fewer new customer service installations and less network construction.

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.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Bell's performance in Q2 underscored the scale and resiliency of networks and the strength of financial foundation. During the quarter, the company added 34,702 total net new postpaid and prepaid customers to its wireless segment, resulting in total customer base of 10.01 million. 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-week trading levels and retains potential for further growth. The stock gave a return of 0.52% in the past three months and a return of 2% in the last one month. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target upside of lower upside of lower double-digit (In percentage terms). Considering the current trading levels, decent returns in the past three months, resilient financial performance and expanding market share, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 56.73, down by 0.5958% on 7 August 2020.

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

Quebecor Inc.

Maintaining Financial Strength: Quebecor Inc. (TSX: QBR.B) is a communication company which operates through Telecommunication segment, offering television distribution, internet access, business solutions, cable and mobile telephony and over-the-top video services. As on 7 August 2020, the market capitalization of the company stood at ~CAD 5.71 billion.

Quarterly Performance (For the Quarter Ended 30 June 2020): During the second quarter ended 30 June 2020, revenue of the company went down by CAD 53.1 million to CAD 1 billion and adjusted EBITDA witnessed an increase of 4.5% to CAD 47.5.5 million. Despite substantial revenue declines at some business units, the company grew its customer base and increased its profitability while maintaining its financial strength. In the same time span, net income attributable to shareholders stood at CAD 174.9 million as compared to CAD 140.2 million in the same period of 2019. During the quarter, the company saw a net increase of 16,700 revenue‑generating units, including 35,100 connections to the mobile telephony service and 17,200 subscriptions to the cable Internet access service. In the same time span, cash flows from operations stood at CAD 326.1 million.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The COVID‑19 pandemic continues to have a significant impact on the economic environment in Canada because of which restrictions and special preventive measures were put in place. The health crisis curtailed the operations of many of Quebecor's business partners and has led to a significant slowdown in some of Quebecor's segments in the first half of 2020.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the period of uncertainty, the company demonstrated excellence of its operational and financial management, with higher quarterly growth than the major national industry players. The company retains a solid financial position and is evaluating and prioritizing investing in strategies that will be profitable over the long-term, thereby maintaining its position as an innovation leader. As per TSX, the stock of QBR.R is inclined towards its 52-weeks’ high level of CAD 34.28 but retains potential for further growth. As per TSX, the stock of QBR.R gave a return of 9.67% in the past three months and a return of 13.26% in the last one month. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (In percentage terms). Considering the current trading levels, decent returns in the past three months, improvement in financial highlights and growth opportunities, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 32.79, up by 3.3081% on 7 August 2020.

QBR.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.