Time to buy BCE, this portfolio manager says

Canadian telecom stock BCE Inc (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) has lost a lot of ground over the past few months. Is now a good time to buy?

Portfolio manager Christine Poole of GlobeInvest Capital says so. Poole thinks the prospects are good for BCE to become a cash-printing machine once its fibre internet buildout is completed in a couple of years.

“We like BCE. We’ve held it in our income portfolios and we’ve just added it recently to all our client portfolios,” said Poole, CEO of GlobeInvest, who spoke on BNN Bloomberg on Tuesday.

“We like the yield [at] just under six per cent,” she said. “We think the dividend is safe, and that dividend has been increasing in the mid single digit range each year. So that’s good, especially in a rising [interest] rate environment.”

BCE went on a strong run over 2021 and the opening few months of 2022, as investors took to telecom companies and other utilities as ways to play defensive amid economic uncertainty. The stock put on about 30 per cent over that time period, which is quite a feat for a stay-at-home name like Bell.

But since about mid-April, the tide started to turn and BCE has now erased most of those gains. In fact, at its current vantage point of around $62 per share, the stock is right around its pre-COVID levels, leaving long-term investors with just the juicy dividend as consolation.

But Poole says there are a number of reasons for investors to be excited about a usually boring space like the Canadian telcos. 

“BCE and their wireless division as well as the other telco providers are benefiting from increasing roaming [revenues] because roaming revenues collapsed during the pandemic,” Poole said. “It’s [about] travelling. We’re seeing international and domestic travel ramp up now, so roaming revenues have now recovered to about 90 per cent of what they were pre-pandemic. And so, that’s a tailwind for the company now.”

“As well, the immigration flow that we’re seeing into Canada — the Canadian government is targeting levels of immigration for the next couple of years to get that ramped up — and I think that’s going to be beneficial for telecom operators, because as people come into the country, they will need to have cell phone access and Internet access,” she said.

BCE gave a hint of those prevailing tailwinds in its latest quarterly report, where the company scored a bottom line beat with second quarter adjusted earnings rising to $0.87 per share compared to $0.83 a year earlier. Analysts had been calling for $0.84 per share. Q2 revenue was $5.86 billion, up three per cent year-over-year and pacing the consensus call at $5.87 billion.

BCE said it’s already reaping the rewards of billions put into its 5G network, with users showing their spending power in that capacity. President and CEO Mirko Bibic said customers are buying 5G handsets and connecting to 5G networks at a high level.

“5G customers use their phones and data basically twice as much and they spend about 20 per cent more, so we’re kind of seeing healthy growth on 5G,” said Bibic in an August 4 interview on BNN. “And on the internet side, customers are subscribing to the higher speed plans. So, what we’re seeing so far is quite healthy and we’re not seeing any pressure on our receivables … so the payments are strong as well.”

Poole said the good vibes are likely to continue as BCE’s broadband fibre sees further uptake. 

“On the wireline side, BCE is building out their fibre. They’re targeting to have 80 per cent of their footprint covered by 2025. So, the capital spending has been ramped up in order to enable this fibre build out, and I think once they get there in a few years, you’re going to see this company generate a lot of free cash flow. So that’s positive for long term cash flow generating prospects,” Poole said.

For the second quarter, Bell Wireless saw operating revenue climb by 5.5 per cent year-over-year to $2.25 billion, while Bell Wireline revenue dropped 0.3 per cent to $3.00 billion. Bell added 110,761 net new postpaid and prepaid mobile phone subscribers over the quarter, up 140 per cent from a year earlier, and it added 22,620 net new retail Internet subscribers, up 28 per cent. As for its Media segment, Bell increased its revenue by almost nine per cent to $821 million, with strong results from digital revenue and advertising for its TV sports and news services.