BCE Inc.

Bell Launches CA Largest 5G Wireless Network: BCE Inc. (TSX: BCE) is both a wireless and Internet service provider, offering wireless, broadband, television, and landline phone services in Canada. As on 16 June 2020, the market capitalization of the company stood at CAD52.39 billion. Bell has recently launched Canada's largest 5G wireless network which offers unprecedented mobile data speed. The service is likely to expand in more centres across the country. The company has also partnered with Western University to create an advanced 5G research centre. The company has also announced that Ericsson will provide radio access network equipment for Bell's national 5G wireless network.

BlackBerry and Bell to Deliver Enhanced Mobile Threat Defense: The company has recently announced a new partnership with BlackBerry Limited to provide enhanced secure communications to business and government customers. This will strengthen longstanding relationship of both the companies to deliver leading-edge mobile security solutions to Canadian consumers and business customers.

Dividend History: The company has been consistently paying dividends to its shareholders over the past three years. Despite the outspread of the global pandemic, the company did not make any changes in the dividend payments. While the crisis significantly impacted retail activity, the Board has declared a quarterly dividend of CAD0.8325 per common share, reflecting an increase of 5% on the previous year. The financial flexibility will help the company to sustain its dividend payments for the foreseeable future.

Growth Opportunities: The COVID-19 crisis has clearly underscored the critical importance of high-quality networks to keep consumers, and businesses connected. Bell remains committed to build the best, taking wireless into the next generation.

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: Despite the unprecedented times, BCE continued to lead its way and reported a decent YoY growth in adjusted EBITDA. While the crisis significantly impacted retail activity, the decent financial results are likely to drive the growth of the company. The stock of BCE gave a return of 1.43% in the past three months and a return of 3.13% in the last one month. On a TTM basis, the stock is trading at an EV/EBITDA multiple of 7.8x, lower than the industry average (Telecommunications Services) of 16.7x and thus seems undervalued. Considering the financial resilience of the business amidst the pandemic, growth opportunities, recent partnership with BlackBerry, we recommend a ‘Buy’ rating on the stock at the current market price of CAD57.94, up by 2.3313% on 16 June 2020.

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

Rogers Communications Inc.

Pricing of USD750 million Offering of Floating Rate US Dollar Debt Securities: Rogers Communications Inc. (TSX: RCI.B) is the largest wireless service provider in Canada which offers home Internet, television, and landline phone service to consumers and businesses. As on 16 June 2020, the market capitalization of the company stood at CAD22.79 billion. The company has recently priced a public offering of USD750 million of floating rate senior notes which are due in 2022. It will bear interest at three-month LIBOR plus 0.60% per annum. The net proceeds are to be used for the general purposes and may repay part of RCI’s 5.34% Senior Notes.

Rogers Communications Declares 50 Cents per Share Quarterly Dividend: The company has returned substantial cash to shareholders through the payment of CAD253 million in dividends and has declared a quarterly dividend of 50 cents per share on outstanding Class B Non-Voting shares and Class A Voting shares. This will be paid on 2 July 2020. The company has been consistently paying its dividends for the past three months.

Quarterly Performance: During the first quarter ended 31 March 2020, RCI.B reported an increase of 14% in Free cash flow of CAD462 million with solid liquidity position of CAD3.8 billion. The company retains a strong balance sheet, providing a resilient foundation for the future. During the quarter, the company expanded its consolidated adjusted EBITDA margin by 190 basis points, to 39.1%.

Quarterly Highlights (Source: Company Reports)

Free Voice and Data Plans to Help Women in Crisis: The company has partnered with women’s shelters to provide connectivity to support most vulnerable citizens during this global health crisis. It is offering complimentary devices along with six months free voice and data plans to women’s shelters.

Key Risks: The company might face some risks and uncertainties that could have a material adverse effect on its business and financial results. With the outbreak of COVID-19, well-being of the customers has invoked the business continuity plans and implemented a specific response plan to provide essential services. It might face the risk of material reduction in demand which may lead to decline in revenues.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company has quickly adapted to deliver critical services to meet the evolving needs of customers. It has a strong balance sheet which positions the company to well to manage through this crisis. The stock of RCI gave a return of 0.38% in the past three months and a return of 9.03% in the last one month. The stock is trading at attractive levels and hence offers an opportunity for growth. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price offering an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Telephone and Data Systems Inc, NTT Docomo Inc and America Movil SAB de CV as peers. Considering the current trading levels, decent returns in the past three months, strong balance sheet and decent financial performance, we recommend a ‘Buy” rating on the stock at the current market price of CAD57.9, up by 0.5907% on 16 June 2020.

RCI.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.