BCE Looks Strong After Failed Merger

Includes: BCE, BLIAF, TU
by: FP Trading Desk

Now that the deal to privatize BCE Inc. is dead, analysts are jumping back into coverage on the giant telecom in quick order.

The latest to do so is BMO Capital Markets analyst Peter Rhamey. He resumed coverage on Tuesday, saying BCE is well capitalized, focused on execution and importantly for investors, trading at a nice price.

He wrote in a research note:

The stock trades at an attractive valuation multiple that is at a discount to peers and well below historical trading ranges. We rate the stock Outperform, reflecting its attractive valuation, stable free cash flow outlook and strong balance sheet.

The analyst has a C$27 price target that implies a target enterprise value to 2009 estimated EBITDA of 5x, a target price earnings of 12.4x, free cash flow yield of 9.8% and dividend yield of 5.4% based on the reinstatement of BCE's C$1.46 dividend.

Mr. Rhamey said the company will stay focused on operation into 2010, but after that could consider buying out the minority of Bell Aliant (OTC:BLIAF) and also a transaction with Telus Corp. (NYSE:TU).

He told clients:

We believe that the financial benefits of combining Bell and Telus remain considerable and that with both companies' slow growth, they have the incentive to consider a combination at some point in the future. We believe to get a merger approved, the emergence of a viable fourth wireless competitor will have to be evident in order to minimize wireless asset disposals.

Down the road at Scotia Capital, analyst John Henderson upgraded his recommendation on BCE to "sector outperform" and left his C$30 price target unchanged.