In a prior article we mentioned that BCE, Inc. (BCE), Canada's largest telecom company, had announced that it will acquire Astral Media, along with its TV channels, to enhance its presence in Quebec. We also mentioned that its rival, Quebecor, has objected to the deal on the grounds that it would monopolize the company's already strong position in the television business. Now Rogers Communication, BCE's other rival, has also opposed the deal on the same grounds. It has urged local regulator CRTC to force BCE to dispose of Astral's English language television assets. Interesting to note is that Rogers also seems interested in buying the English language TV assets, which it is asking BCE to sell. This clearly shows it is all about market positioning and who gets the majority of the market share.
What is really worrying Rogers Communication is that if BCE does end up buying Astral Media, Rogers would lose almost half of its video-on-demand content, which is currently being supplied by Astral. BCE has accumulated the country's largest collection of TV channels and digital programming over the years, as part of its convergence strategy, and if the deal goes smoothly for the company it is bound to boost its revenues going forward. The company's media division has been responsible for much of its revenue growth, with EBITDA growth of almost 25% in the second quarter due to consistently rising audience levels across its television channels, as well as a strong line up of new programs on CTV.
BCE has recently announced that it plans to launch its "made in Canada" online video service after its acquisition of Astral is approved. The announcement, which came during the hearing with CRTC, means that its customers would be able to see various video content through its pay TV services. The proposed Astral deal would definitely help BCE in that it would be in a stronger position to compete with companies like Amazon (AMZN) and Netflix (NFLX), to which approximately 10% of Canadian consumers subscribe.
BCE is a growth story, and this is reflected in its stock over the last year. The stock has gained over 15% during the last 52 weeks. Despite a modest 3% growth in revenues since FY 2008, the company has shown a staggering earnings growth of 35% over the same period, with quarterly earnings growth of 30%. From a dividend perspective it remains attractive, as it currently yields over 5%, well-backed by its operating cash flow yield of almost 10%. The company's ability to finance its dividend payments, as well as capital expenditures through its operating cash flows, is reflected in the fact that in the six months ended June 2012 it generated almost $3.1 billion in cash through its operations, while incurring a total of $2.6 billion in dividend payments and capital expenditures. The company has consistently raised its quarterly dividends since 2000, and it recently declared a quarterly dividend of $0.57 -- a 5% increase compared to the previous quarter's dividend. The stock looks cheap on its multiples with a forward P/E of 13 times, lower than Telus Corp.'s (TU) 14 times. On an EV/EBITDA basis the stock is cheap as well, trading at 6 times and at a 14% discount to Telus' multiple.
We remain bullish on the company based on its second-quarter results, especially with regard to BCE wireless, which showed impressive revenue growth of 7% along with EBITDA growth of over 20%. We believe the Astral/BCE deal and the proposed online video service will serve as catalysts for future growth.