BCE INC. $39 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 777.5 million; Market cap: $30.3 billion; Price-to-sales ratio: 1.6; Dividend yield: 5.3%; TSINetwork Rating: Above Average; www.bce.ca) is Canada’s largest provider of telephone, Internet and wireless services. The company’s main subsidiary, Bell Canada, has 6.3 million residential and business customers in Ontario and Quebec.
BCE sells wireless services to 7.3 million subscribers across Canada. As well, it has 2.1 million high-speed Internet customers and 2.0 million TV subscribers.
Through Bell Media, the company owns the CTV Television Network (28 TV stations), 29 specialty channels and 33 radio stations. It also owns 45% of Bell Aliant.
In the three months ended June 30, 2011, BCE earned $663 million. That’s up 11.4% from $595 million a year earlier. Earnings per share rose 10.3%, to $0.86 from $0.78, on more shares outstanding.
BCE’s revenue rose 11.6% in the quarter, to $5.0 billion from $4.4 billion. Revenue fell 2.0% at the wireline division, because BCE’s traditional phone (or land line) business faces rising price competition. As well, many customers are cancelling their land lines and switching to wireless devices. These losses offset higher revenue from the wireline division’s satellite and Internet-based TV services.
However, revenue at the wireless division rose 6.1%. This division added 36,507 subscribers in the quarter (net of deactivations).
BCE is also benefiting from rising use of smartphones, which generate higher monthly fees than regular cellphones. On June 30, 2011, 38% of its wireless customers under long-term contracts were smartphone users, up from 22% a year earlier.
The company will probably spend $3.1 billion on network upgrades in 2011, up from $3.0 billion in 2010. BCE’s cash flow should be $6 billion in 2011, so it can easily afford these expenses.
The company will likely spend $1.5 billion on dividends in 2011, so it still has plenty of room to raise its current rate of $2.07, which yields 5.3%. The stock has gained 20% in the past year, but it still trades at just 12.9 times BCE’s likely 2011 earnings of $3.03 a share.
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