Canada’s telco sector offers a lot of perks for investors on the defensive end of the spectrum: solid dividends that get upped rain or shine, loads of profitability on a quarterly basis and calm waters in the way of stock price movement. Over the past while, that last feature has been challenged by the (relatively) big gains by BCE (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) and Telus (Telus Stock Quote, Charts, News, Analysts, Financials TSX:T), both of which have double-digit returns in 2021.
Which is the best place to park your money? Here, a couple of portfolio managers weigh in.
Speaking up for BCE is Paul Harris of Harris Douglas Asset Management, who likes BCE’s track record of investing heavily and soundly in its infrastructure build-out, something that Harris said will help set it apart from the others with the dawning of now the 5G era of networking.
“As a telecommunication company in Canada, BCE trades at 18x earnings and it’s got a great yield,” says Harris, partner at Harris Douglas, who spoke about BCE on a segment of BNN Bloomberg in July.
“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 announced earlier this year an acceleration of its capex investment of an added $1 – $1.2 billion over the next two years to support its fast fibre rollout of rural Wireless Home Internet and 5G networks, with the company aiming to have 6.9 million homes in Canada covered by fast fibre by the end of 2021.
“Funded by proceeds from the sale of Bell data centres in 2020, the investment acceleration is in addition to Bell’s typical capital expenditures over the last decade of approximately $4 billion a year (growing to $4.2 billion in 2020 due to added investment in network capacity and digital platforms in response to unprecedented usage demand during the COVID crisis),” said BCE in a February 4 press release.
Telus is no slouch in terms of capex, either, doling out $2.8 billion last year on infrastructure build. The company covered 2.5 million premises with its PureFibre network by the end of last year and giving access to its 5G network to 10.5 million Canadians.
“Our generational and superior fibre build is progressing towards completion, providing a solid foundation for the ongoing expansion of our world-leading wireless network with 5G, particularly as key 3500 MHz spectrum becomes available in 2021,” said Telus CFO Doug French in a fourth quarter 2020 press release in February.
Speaking on Telus and BCE, portfolio manager Bill Harris of Avenue Investment Management says the two stack up well against each other, although his preference leans toward BCE. But that may change, Harris said, as Telus’ investments in non-telco sectors like call centres, digital transformation and data analytics could prove a difference-maker.
“At this point in time we would normally have a telco [in our portfolio]. We’re looking to see if something rolls off why we would add it back. We usually default to BCE, in that category,” said Harris, partner at Avenue Investment, who spoke on BNN Bloomberg in August.
“Over time, Telus has done extremely well but it’s pretty aggressive in terms of their dividend and capex and they always are sort of gunning it if you’re looking at their financial statements over time,” Harris said.
“The interesting thing is in this particular window — but we think it’s actually already priced into the market, as Telus has done well and it’s priced in — which is where BCE and Rogers felt that they had to have content and then you’re selling your content on your platform, Telus has gone out and said that data analysis and AI are going to be part of the future,” Harris said.
“Where the other telecoms have the legacy businesses, Telus is actually a pretty clean company, and where they’re spending that incremental dollar is on big data. So, Telus starts to become a very sexy story, and it will also get a premium valuation for that,” he said.
“But right now, we still find that we’re getting a better value in something like BCE than Telus, but now it’s getting very hard though so it’s almost like Telus has run because of that. [In other words], we’re not touching Telus because it’s expensive, but it’s expensive for a reason,” Harris said.
By their share prices, BCE is currently up 19 per cent year-to-date and up 18 per cent over the past 12 months, while Telus is up 13 per cent year-to-date and up 22 per cent over the past 12 months.
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