BCE Inc. (BCE), Canada's biggest telecommunications company, announced its financial results for the third quarter. Profits fell compared to the same quarter of the previous year, largely due to higher tax expense. Its revenues, however, jumped up mainly due to strong wireless and media growth. We are bullish on BCE as it pays an attractive dividend yield of 5.2%. Since 2007, its dividends have grown at a compounded annual growth rate of almost 10%. The stock is also cheaper than its competitors.
The company recently announced a quarterly dividend of $0.5675 per share. BCE has also reaffirmed its guidance for the full-year results, which was provided on Feb. 9 and later updated in August.
Source: Earnings release.
BCE operates through four segments, namely Wireline, Wireless, Media, and Bell Aliant. The Wireline segment contributes almost 50% of the company's total revenue stream. The company's other major exposure in the region is in the wireless market and, in the quarter recently ended, the company drew approximately 30% of revenues from its Wireless segment. BCE generated operating revenues of $4.9 billion in the third quarter, which is modest growth of almost 2% over Q3 2011. Net earnings declined in the quarter to $569 million, or $0.74 per share, as compared to $0.83 in Q3 2011. This decrease in earnings was largely due to a higher tax expense in the third quarter and a higher depreciation charge.
BCE Wireless continues to do well quarter over quarter, and its performance is visible in its recently released financials. The third quarter ended with strong growth in EBITDA, margin expansion, and cash flow growth, with improvements seen in other metrics such as average revenue per user, net postpaid activations, and average churn. Total operating revenues for the Wireless segment grew by over 7% in the quarter, to $1.434 billion, due to strong postpaid subscriber growth as well as increase in smartphone usage.
Even though the company did not disclose the number of smartphones sold in the quarter, revenues from product and equipment sales increased, by an impressive 11%, in Q3 2012. This also marks another quarter of sequential increase in product revenues. Increased sales of smartphones, which now account for 60% of the company's total postpaid base, coupled with increased data usage by its customers, led to higher average revenue per user, which increased by 4% to $57.30 in the quarter. ARPU also improved sequentially in the third quarter by a margin of $1.93.
Other highlights include:
- EBITDA growth of 15%, which is also the highest growth in the last five years.
- Net postpaid additions reaching 148,502 in the quarter compared to 126,854 in Q3 2011, representing a growth of 17%.
- Postpaid churn was down 30 basis points in Q3 2012. Even more impressive is the prepaid churn, which improved to 3.3% from 3.9% in the third quarter of the previous year.
Total Wireline revenues declined 4% from the revenues in Q3 2011. BCE Wireline, like other telecom carriers in the region, is suffering from decreases in traditional landline revenues. Local access revenues declined 8% in the quarter, largely due to reduction in access lines, and due to customers switching to wireless products. However, the company's Fibe TV connections were strong in the quarter, continuing to be the growth driver of the Wireline segment, offsetting the decline in voice revenues. Net Fibe TV additions were 42,793, which are more than double the additions the company achieved last year.
Other highlights include:
- Fewer minutes of use by residential and business customers, leading to long-distance revenue decline of 14%.
- Equipment revenue decline of 8% due to lower wireline equipment sales.
- Strong high-speed Internet connection growth, helped by the company offering a service bundle that includes Fibe TV.
The Canadian Radio Television and Telecommunications Commission recently rejected the company's application for a takeover of Montreal's Astral Media Inc., along with its TV channels, on the grounds that giving BCE control over Astral would further strengthen its monopoly position in the industry. However, the company's CEO recently announced that even if the Astral deal does not come through, BCE will continue to follow its 5% dividend growth policy and that it is on track to meeting its full-year guidance.
BCE is trading at 13 times its forward earnings, lower than that of its peers Rogers Communications (RCI) and Telus (TU), with forward multiples of 13 times and 15 times, respectively. On a price/sales basis, BCE looks cheap as well, with a multiple of 1.63 and trading at a discount of 8.5% and 16% compared to RCI and TU, respectively, suggesting that the stock is undervalued.
For a more detailed analysis on BCE, click here.