BCE’s (TSX:BCE) fourth quarter revealed solid execution but the company is bested by its more ambitious peers, says Echelon Wealth Partners analyst Rob Goff.
BCE today reported its fourth quarter and fiscal 2016 results. In the fourth quarter, the company posted EBITDA of $2.12-billion on revenue of $5.72-billion, a topline that was just under two per cent better than the same period a year prior.
“Our fourth quarter performance was a strong finish to a year in which the Bell team consistently executed our broadband leadership strategy, delivering value for our customers, communities and shareholders alike. Bell is a company with momentum, rolling out new fibre and wireless networks that rank with the best in the world and the exclusive innovations in communications and media that Canadians clearly want the most,” said Bell CEO George Cope. “Unceasing network and service innovation is key to Bell’s growing leadership in broadband communications, reflected in the fourth quarter with a gain of more than 54,000 Fibe TV and Internet net customer additions, and approximately 240,000 in 2016; more than 112,000 new postpaid wireless customers in the quarter and 315,000 in 2016, increases of 23 per cent and 19 per cent, respectively; and the accelerating growth of Bell Media’s CraveTV streaming service.”
Goff says that while he admires the execution in this quarter, he consider BCE a defensive holding with modest upside and potential valuation pressure from competitors and/or rising rates.
“We continue to view BCE as a conservative holding, consistent with solid execution and ~5% dividend growth over the mid-term,” he says. “Given its relative valuation premium, we prefer peers with larger wireless leverage and less valuation sensitivity, should rates rise. Wireless prospects are encouraging with renewed demand growth and better ARPU outlook, where 30-40% y/y growth in data usage leaves the realistic potential for ARPU growth of 3%+ given reasonable pricing discipline. Tough wired subscriber results highlight concerns towards prospects of competitive rebalancing on wired video and broadband given the next wave of X1 (or its comparable), 1Gig availability, and slowing Fibre advancement.”
In a research update to clients today, Goff maintained his “Hold” rating and one-year price target of $63.00 on BCE, implying a return of 14.4 per cent at the time of publication.
Goff believes BCE will post EBITDA of $9.02-billion on revenue of $22.18-billion in fiscal 2017.