Company Reports

Given the downbeat 2024 outlook BCE provided earlier this year, first-quarter sales and EBITDA stagnation were unsurprising. Postpaid mobile phone and residential fixed-line internet subscriber additions remained strong, but the firm discussed an intensely competitive environment, and BCE seems to be materially underperforming rival Rogers. Margins should improve as the year goes on as some of the firm’s cost and workforce reductions take effect. BCE maintained its 2024 outlook, and we’re not changing our CAD 60 fair value estimate.

BCE has been investing heavily over the past several years to upgrade its wireline network with fiber. In the time since, the firm has been outperforming competitors in adding new broadband subscribers. We expect the firm to continue taking share, but we expect the pace to ease, as the firm has slowed its fiber network buildout in response to regulatory mandates that it share the fiber network. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

The Big Three Canadian telecom firms have all sold off substantially over the past month after members of Parliament summoned the three CEOs to testify before a House of Commons committee. The CEOs were grilled on March 18 and the MPs have not yet taken action. While vilifying telecom firms is popular, and consumers undoubtedly desire lower prices, we don’t expect major regulatory changes. We’re maintaining our fair value estimates of CAD 78 for Rogers, CAD 33 for Telus, and CAD 60 for BCE.

BCE reported a decent fourth quarter, and its 2024 sales and EBITDA guidance was consistent with recent trends. However, management stepped up its aggression against what it sees as overly intrusive regulations and used that backdrop to support a series of decisions to restructure its business. With multiple moving parts, management guided to a significant drop in free cash flow in 2024 and was reticent to say if there would be a bounceback in 2025. We’re reducing our fair value estimate to CAD 60 from CAD 65 due to the change in our cash flow expectations and greater long-term uncertainty.

BCE has been investing heavily over the past several years to upgrade its wireline network with fiber. In the time since, the firm has been outperforming competitors in adding new broadband subscribers. We expect the firm to continue taking share, but we expect the pace to ease, as the firm has slowed its fiber network buildout in response to regulatory mandates that it share the fiber network. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

The Canada Radio-television and Telecommunications Commission announced an initial decision requiring telecom companies to allow resellers access to fiber networks in much of Ontario and Quebec. A review is ongoing, and although we expect mandatory fiber wholesaling to survive the final decision, we expect specifics to evolve. BCE is the only telecom firm materially impacted in Ontario and Quebec. BCE immediately announced that it would reduce fiber capital spending by $1 billion over the next two years. After considering the various ramifications of the CRTC’s decision, we are not changing our CAD 65 fair value estimate.

BCE had a good third quarter but exhibited some signs that are worth watching. On the positive side, sales and profits are tracking full-year targets, and net customer additions remain strong in wireless and broadband. However, wireless customer churn ticked up significantly in the wake of Quebecor’s entrance as a nationwide competitor, and pressure on average revenue per customer, or ARPU, worsened. We’re adjusting our long-term forecast slightly to reflect the competitive dynamic and reducing our fair value estimate to CAD 65 from CAD 67.

BCE has been investing heavily over the past several years to upgrade its wireline network with fiber. In the time since, the firm has been outperforming competitors in adding new broadband subscribers, but we think the firm has more runway to take share over its footprint. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

BCE’s second quarter looked similar to the past few in terms of subscriber growth and pricing and BCE’s positioning in the market. Postpaid phone subscriber growth remains historically strong, but clearly trails the success Rogers has been having in a hot market. On the other hand, BCE continues to take share in wireline with its fiber buildout. Margins remained under pressure, but should improve in the second half. In all, this quarter generally mirrors the trend we expect to continue long term, and we are maintaining our CAD 67 fair value estimate, leaving the stock materially undervalued, in our view.

BCE has been investing heavily over the past several years to upgrade its wireline network with fiber. In the time since, the firm has been outperforming competitors in adding new broadband subscribers, but we think the firm has more runway to take share over its footprint. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

BCE has been investing heavily over the past several years to upgrade its wireline network with fiber. In the time since, the firm has been outperforming competitors in adding new broadband subscribers, but we think the firm has more runway to take share over its footprint. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

BCE’s first quarter was not impressive on the top line, and bottom-line results were poor. However, we hold a more positive view on the areas that we believe are most important to the firm, notably the progress with fiber broadband subscribers and steady—albeit lackluster—performance in wireless. We are maintaining our CAD 67/$50 fair value estimate and find BCE’s peers more attractive at current levels. However, if the disappointing first-quarter results spur a selloff, we’d see it as an opportunity, as we remain confident in BCE’s long-term prospects.

BCE has been investing heavily over the past several years to upgrade its wireline network with fiber. In the time since, the firm has been outperforming competitors in adding new broadband subscribers, but we think the firm has more runway to take share over its footprint. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

BCE had a good fourth quarter, as it continued to take share in wireline and posted great wireless results, though it again slightly lagged Rogers in wireless phone customer additions. However, gains in wireline market share are not yet translating to wireline sales growth, and BCE isn’t operating as efficiently as Rogers, as judged by margins in both 2022 results and the firms’ respective 2023 outlooks. We are maintaining our CAD 67 fair value estimate for BCE, leaving the stock moderately undervalued. We don’t think the stock is overly exciting at present, but further weakness would provide an excellent buying opportunity in our view.

The magnitude of subscriber additions in both wireless and fixed-line broadband was the highlight of BCE’s third-quarter results. On the downside, the media business is seeing weakness due to the broader economic environment. Also, consolidated margins were relatively weak, and strength with retail broadband subscribers is barely enough to offset weakness in wireline voice and enterprise services. While the quarter was good and some of the negatives will be only short-term in nature, our long-term outlook is unaltered, and we are maintaining our CAD 67 fair value estimate. We think the stock is attractive but not overly compelling.

BCE has been investing heavily to upgrade its wireline network by extending fiber to the home, or FTTH, which we think positions the firm to take share over its footprint. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.

Similar to Rogers' report last week, BCE’s second-quarter wireless and media results were very strong as the Canadian telecom market is returning to normal. Wireline, which was not hit as hard by the pandemic, doesn’t have the same tailwinds, and BCE’s wireline results were mediocre. We are maintaining our CAD 67 fair value estimate for BCE and believe the stock is close to fairly valued. In our view, Rogers’ business has been much stronger, but its recent network outage has caused concerns that it will now lose share. We think Rogers’ stock overly discounts the extent to which its momentum may turn.

Quebecor has agreed to buy Shaw’s Freedom Mobile for CAD 2.85 billion in a deal that is contingent on regulatory approval of the Rogers/Shaw merger, which we now think is more likely in light of this agreement.

We generally think all the major Canadian telecom companies have strong businesses and are worthy of investment at the right price. We favor the businesses of the three biggest wireless providers—Rogers, BCE, and Telus—the most. We see them as low-uncertainty stocks with stable businesses and narrow moats. Recently, the stock market has favored stability, to the benefit of the Big Three. BCE and Telus look fairly valued relative to our CAD 67 and CAD 32 fair value estimates, respectively. Rogers has only recently dropped materially below our fair value estimate due to uncertainty surrounding its Shaw acquisition, which won’t materially change our CAD 70 fair value estimate regardless of how the deal plays out. The selloff makes Rogers’ stock attractive currently, in our view.

BCE has been investing heavily to upgrade its wireline network by extending fiber to the home, or FTTH, which we think positions the firm to take share over its footprint. BCE also remains a leader in providing wireless service throughout Canada and has a formidable media business.