Canadian telecom companies have had a lot to contend with in the last few years. A challenging regulatory environment, increased competition, and high debt loads have all put significant pressure on telecom stocks like BCE Inc. (TSX: BCE). As a result, BCE’s market capitalization has been slashed as its stock price has plummeted more than 40% in the last three years.
The Canadian telecom industry is in a state of shock. But this industry remains essential and lucrative. Thus, this could be a once-in-a-lifetime buying opportunity for investors.
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BCE stock: Latest results
Second quarter results from BCE showed that the struggles continue. But the results also showed early signs of improvement. Revenue increased 1.5% to $6.2 billion, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 1% to $2.7 billion, and free cash flow came in at more than $1 billion.
While earnings once again came in at a loss, certain trends are promising. For example, wireless trends improved. This means better pricing that better reflects the value proposition for customers. Also, churn was the lowest in three years, and BCE achieved better product margins.
An update on BCE’s Ziply acquisition was positive as well, with increasing momentum. In fact, the building out of the U.S. network is gaining steam, and BCE’s fibre penetration is accelerating. In the quarter, Ziply posted the highest net customer additions since the acquisition. Simply put, where Ziply has fibre, it’s winning customers.
BCE’s higher-growth areas
In BCE’s higher-growth segments, there are early positive signs of improvement and growth as well. For example, Bell Media posted a strong quarter, with an 8.9% increase in revenue to $918 million and a 3.8% increase in adjusted EBITDA. This was driven by the FIFA games as well as strong growth in Crave memberships. In fact, Crave subscribers increased 23% to 5.1 million.
In Bell’s AI Fabric business, the momentum is building. BCE is aiming to help create Canada’s leading AI ecosystem by delivering a secure, sovereign ecosystem of data centres and solutions. BCE is a valued partner in this ecosystem as it has the telecom assets to support it.
Balance sheet
BCE stock’s balance sheet has been an area of concern in recent years. But the actions taken by management have reduced expenses, streamlined the business, and allowed it to deleverage. Today, BCE’s net debt leverage ratio is 3.7 times. This is 0.1 times lower than the same period last year. Management is confident that BCE’s net debt leverage ratio target of 3.5 times will be achieved by the end of 2027.
BCE currently has $4.6 billion in liquidity. This will support the company’s fibre expansion and its investment in Bell AI fabric, positioning the company for stronger growth prospects in the years to come.
The bottom line
Telecom assets are an invaluable piece of the technology puzzle. These assets are currently undervalued, in my view, due to industry-wide problems. These problems are not insignificant. Yet, if governments expect to enter the new world of digitization and AI, they will need to provide a regulatory framework for telecom companies that allows and encourages them to facilitate this.
BCE’s stock price is trading at very depressed levels, reflecting all of this bad news. Looking ahead, I think we’ll continue to see improvements in the telecom environment as well as BCE’s growth profile.
