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BCE is still an expensive stock, this fund manager says


BCEIt’s a pass right now but portfolio manager Paul Gardner still likes BCE (BCE Stock Quote, Chart, News, Analysts, Financials TSX:BCE) as a long-haul play on Canada’s telecom scene, especially considering the role that 5G networks will play in the company’s fortunes looking ahead.

“We’ve held BCE for a long time but we don’t have it right now, just because the space we think is expensive and we allocated our capital elsewhere,” says Gardner, partner at Avenue Investment Management, who spoke on BNN Bloomberg on Thursday.

“But that being said, I’m almost uncomfortable not being long BCE. I think it’s a great long-term story and it’s a great free cash flow story,” said Gardner.

BCE had an off year in 2020, with revenue falling almost four per cent from 2019’s totals to $22.883 billion. The COVID-19 pandemic had its impact on a number of the company’s business lines, from Bell Media to wireless product sales, to mention roaming charges, advertising and business customer spend, all of which were under pressure over the past 12 months.

By segment, Wireless operating revenue fell 3.5 per cent, Service revenue dropped 3.2 per cent and Product revenue fell 4.4 per cent. All that impacted BCE’s bottom line in 2020, where adjusted EBITDA fell 4.0 per cent to $9.607 billion.

Calling 2021 a transition year for the company, management guided in the fourth quarter report for 2021 revenue growth of between two and five per cent with adjusted EBITDA growth of the same, although the company stressed the uncertainties surrounding their outlook due to pandemic-related variables.

“As we enter 2021, our business fundamentals are sound, our competitive position remains strong and the Bell team’s ability to execute is proven,” said Chief Financial Officer Glen LeBlanc in the company’s fourth quarter 2020 press release in early February. “We are poised to succeed with a rock-solid financial foundation driving both our unparalleled national investment strategy and BCE’s higher common share dividend, and ready to deliver on the 2021 financial guidance targets we announced today.”

2020 was not kind to BCE’s share price, either, with the stock dropping 9.5 per cent, where none of Canada’s telcos performed very well in the pandemic year. So far in 2021, BCE is up a solid six per cent, while its dividend yield currently sits at a hearty six per cent.

With its fourth quarter results, BCE announced a further $1-$1.2 billion in capex to be spent over the next two years, aiming to double the footprint covered by Bell’s 5G wireless network.

“Our success in 2021 will continue to be anchored to the priorities we set in 2020,” said president and CEO Mirko Bibic in the fourth quarter conference call. “They centre on increased investment on core network infrastructure that will lay the foundation for future broadband Internet and 5G growth; improving the end-to-end customer experience; the ongoing digital transformation of our operations And a continued sharp focus on our cost structure.”

“We will accelerate capital spending in 2021 to forge ahead even more aggressively on our successful broadband strategy, expanding our all fibre connections, opening up Wireless Home Internet to even more rural communities and building our Wireless 5G network faster,” he said.

Wong said BCE’s efforts to build out its 5G network will pay dividends down the line.

“Bell, of course, got hit with their media assets [during COVID-19], but one thing in which BCE has an advantage is they’ve spent probably close to $2 billion getting fibre to the home, or fibre to the node, which is all about 5G,” Wong said.

“It’s in a great position to steal market share from its competitors. It’s probably no surprise that Rogers wanted to buy Shaw to get more powerful because they’re going to have to eventually compete against the telcos that are BCE and Telus,” he said.

“The only negative is BCE still trades expensive — it trades about 8x EV/EBITDA, and I’d like to get it in a slightly less expensive entry point. But I do like it for the long haul,” Wong said.

Rogers’ plan to buy Western Canadian-focused Shaw Communications for $26 billion would vault the combined company into second place in terms of size among Canadian telecom companies — and would combine Canada’s top two cable operators — but BCE would still be the largest.

The deal still has regulatory hurdles to clear, with many industry experts already raising concerns about a further shrinking of the competition pool among Canadian telecom providers, but both Rogers and Shaw have effectively framed the merger as a move to gain scale, resources and reach in the race to build out its network.

Speaking to the proposed merger, Rogers CEO Joe Natale said in a March 15 press release, “We’re at a critical inflection point where generational investments are needed to make Canada-wide 5G a reality. 5G is about nation-building; it’s vital to boosting productivity and will help close the connectivity gap faster in rural, remote and Indigenous communities.”

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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