Portfolio manager Paul Harris thinks the 5G wave should crest in Canada by the end of the year, which means owning a stock like BCE (BCE Stock Quote, Chart, News, Analysts, Financials TSX:BCE) will be to your advantage.
As Canada’s largest telecom company, BCE has taken a long time to bounce back from its COVID-19-related downturn last year. The stock languished in the $57 range for much of 2020 and into the start of 2021, well off the $65.00 it was at prior to the pandemic.
But over the past five months BCE has made a big push, rising 12 per cent since the start of March. That’s no small shakes for a defensive utility like BCE bought by many investors more for the dividends than for share price appreciation.
“As a telecommunication company in Canada, BCE trades at 18x earnings and it’s got a great yield,” says Harris, partner at Harris Douglas Asset Management, who spoke to BNN Bloomberg on July 22.
Harris said the rollout of 5G networks across the country will be good for BCE and the other telcos, as Internet usage will expand with the upgrade.
“What these companies are going to be benefiting from over the next several years is the moving to 5G. I think that’s the impetus for why you want to own a telecom company. I think that’s where the big gain will come over the next year,” Harris said.
“I think that what you’ve seen with these companies is the value in having a strong Internet business because of streaming and all these other things. People want high quality Internet so they can do a lot of stuff, and also people working from home has caused a lot of pressure on their system,” he said.
“And I think BCE certainly has one of the best systems with data, bar none,” Harris said.
BCE has been on the outside looking in as far as this year’s big telco shakeup is concerned, where Rogers and Shaw have proposed a multi-billion-dollar merger. The proposed $16 billion deal has a number of regulatory hurdles to clear.
Rogers CEO Joe Natale said recently that the total cost for developing 5G mobile service across Canada could reach $26 billion for Canada’s telecom companies, which Natale says shows how crucial the high capital expenditure build-out by Rogers, BCE, et al is to Canada’s future.
“[$26 billion] is an incredible number,” said Natale, speaking to Bloomberg News on July 23. “I would challenge most industries in Canada to lay down a number that is that large, in terms of investing in the future prosperity of Canada.”
For his part, Harris said the telcos will likely face more pressure to include the servicing of rural areas of the country as part of their 5G network build-out, with many now viewing high-speed Internet as akin to an essential service.
“I think we’ve realized over this last little while that securing those places is very much more difficult and I think that’s a divide between the haves and have nots, and I think telecom companies are kind of stuck in the middle of that,” Harris said.
The Rogers-Shaw deal has been met with stiff criticism from many who see the potential loss of another major telecom company (Shaw is currently the country’s fourth largest) a blow to maintaining a healthily competitive atmosphere.
But Harris says there’s more than one way to help out Canadians with their monthly cellphone and broadband bills.
“It’s a big issue that we’ve always had in Canada that we want more players in the market, and it really makes no sense to me,” Harris said. “This is a very large capex business and it requires a lot of capital, and I think what we have to do is regulate [the telecom companies] properly as opposed to worrying about having six companies or four or five or whatever.”
“I think regulation is better for these companies as opposed to thinking about, ‘Oh well, let’s add more competition.’ When you look at the history, that just led to people going bankrupt and not surviving and then these players get actually bigger for some reason,” he said.
“So, 5G will come to fruition, closer to the end of this year [and] early next year and I think that’s why you want [to own] these companies. [You] get a great dividend and I don’t think they’ re excessively expensive at these levels,” Harris said.
Ahead of BCE’s second quarter 2021 results due on August 5, the company saw operating revenues rise by 1.2 per cent year-over-year over its first quarter to $5.706 billion. Adjusted EBITDA was up by 0.5 per cent to $2.429 billion while adjusted EPS was down 1.3 per cent year-over-year to $0.78 per share. Analysts had been expecting revenue of $5.62 billion and earnings of $0.73 per share.
“Bell’s Q1 results represent a promising start to the year, reflecting significantly better performance trajectories and steady sequential quarterly improvement across all our business segments,” said Glen LeBlanc, Chief Financial Officer for BCE and Bell Canada, in a press release.
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