BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $25 (Toronto symbol BA.UN; Conservative Growth Portfolio, Utilities sector; Units outstanding: 227.6 million; Market cap: $5.7 billion; Price-to-sales ratio: 1.7; SI Rating: Above Average) has 3.1 million telephone customers in Atlantic Canada and rural parts of Ontario and Quebec.
As part of the deal that created the trust in 2006, Bell Aliant transferred most of its wireless business to BCE, which owns 44% of Bell Aliant.
Strong demand for high-speed Internet service is helping Bell Aliant offset the loss of regular phone customers. In 2008, revenue grew 0.9%, to $3.28 billion from $3.25 billion in 2007. However, earnings rose 6.9%, to $331.9 million from $310.4 million. Per-unit earnings rose just 1.5%, to $2.07 from $2.04, on more units outstanding. These figures include restructuring and related charges.
The trust plans to cut 5% of its overall workforce. This should save it $60 million a year. Bell Aliant also plans to save money by cutting capital spending in 2009, to around 14% of its revenue from 16.1% in 2008. These savings should help the trust keep paying monthly distributions of $0.2417 a unit, for an annual yield of 11.6%.
Under Ottawa’s new tax rules, Bell Aliant will have to start paying income taxes in 2011. It has enough tax losses from prior years it can use to reduce or defer its tax bill until 2012, but will probably convert into a corporation after these expire. BCE may also try to buy the trust before it has to convert. While that’s not reason enough to buy, the possibility of a takeover adds appeal.
Bell Aliant is a buy.
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