BCE INC. $58(Toronto symbol BCE; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 865.6 million; Market cap: $49.7 billion; Price-to-sales ratio: 2.3; Dividend yield: 4.7%; TSINetwork Rating: Above Average; www.bce.ca) is Canada’s largest telephone provider, with 6.7 million customers in Ontario, Quebec and the Atlantic provinces. It also has 3.4 million high-speed Internet users and 2.7 million TV subscribers. In all, these operations supplied 56% of BCE’s revenue in 2015.
The company also sells wireless services (32% of revenue) to 8.25 million cellphone users across Canada.
The remaining 12% of BCE’s revenue comes from its Bell Media division, which owns CTV Television (30 stations), 34 specialty channels (including TSN, Discovery, Comedy and Space), pay TV services (including the Movie Network and HBO Canada) and 106 radio stations.
BCE’s recent investments in its networks helped increase its revenue by 10.3%, from $19.5 billion in 2011 to $21.5 billion in 2015.
Overall earnings gained 2.0%, from $2.4 billion in 2011 to $2.5 billion in 2012. Per-share profits rose 1.6%, from $3.13 to $3.18, on more shares outstanding. BCE’s earnings dipped to $2.99 a share (or a total of $2.3 billion) in 2013, but they again rose to $3.18 a share (or $2.5 billion) in 2014 and reached $3.36 a share (or $2.8 billion) in 2015.
BCE is in the second year of a $20-billion, fiveyear plan to upgrade its high-speed and wireless networks. That includes $3.7 billion of improvements in 2016. BCE generates $6 billion of cash flow annually, so it can afford these investments.
One of the projects will enhance its Fibe fibreoptic high-speed Internet and digital TV service. The upgrades will boost its top download speeds in Toronto by about six times. BCE plans to connect 1.1 million homes and businesses in the city by the end of 2017.
Profiting from speedier networks
The fibre optic improvements are making it easier for BCE to launch new technologies, like 4K video, which offers four times the resolution of current high-definition TV signals. The company has also started offering its CraveTV video-streaming service to all Internet users in Canada, instead of just its own TV subscribers.
Meantime, BCE continues to speed up its wireless networks, particularly in rural areas. By the end of 2016, its LTE Advanced networks will cover 75% of Canada’s population, compared to 48% in 2015. These new systems are three times faster than the company’s current 4G LTE networks.
The improvements are paying off: BCE added 127,203 new wireless subscribers, net of cancellations, in 2015. That’s down 34.3% from 193,596 added in 2014, partly due to the switchover from three-year to two-year service contracts. The change raised the number of users shopping for new plans.
However, 78% of BCE’s wireless customers under long-term contracts now use smartphones, up from 76% in 2014. These users tend to download more data and stream videos, which is why BCE’s monthly revenue per subscriber rose 5.3% in 2015.
The company also continues to see strong demand for its Fibe TV service. It ended 2015 with 1.2 million subscribers, up 26.7% from a year ago.
Ready for upcoming cable changes
BCE recently raised $862.8 million by selling 15.1 million common shares for $57.10 each. The cash helped cover the $211 million it paid to Corus Entertainment (Toronto symbol CJR.B) for the rights to the Movie Network channel in Western Canada. That turned the pay TV channel into a national broadcaster.
Earnings at BCE’s media division fell 1.5% in 2015, mainly due to higher costs for programming. Its media earnings could continue to suffer in 2016, particularly as TV subscribers will soon be able to pick and pay for only the stations they want instead of buying packages of channels.
While BCE owns some of the most watched channels in Canada, the change could prompt it to shut down some of its smaller channels if lower subscription revenue threatens their viability.
The company’s sound balance sheet also helps temper its risk. As of December 31, 2015, its long-term debt was $15.4 billion, which is a manageable 31% of its market cap. It also held cash of $613 million.
BCE expects to earn $3.45 to $3.55 a share for all of 2016, and the stock trades at an attractive 16.6 times the midpoint of that range.
Dividend hiked every six months
The company also recently raised its dividend by 5.0%; the new annual rate of $2.73 a share yields 4.7%. BCE has now raised its dividend 12 times in the past seven years.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
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