BELL ALIANT INC. $27 (Toronto symbol BA, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 227.8 million; Market cap: $6.2 billion; Price-to-sales ratio: 2.2; Dividend yield: 7.0%; TSINetwork Rating: Average; www.bellaliant.ca) ells telephone and Internet services to 2.5 million customers in Atlantic Canada, as well as rural parts of Ontario and Quebec. It also sells wireless services through an alliance with BCE, which owns 45% of Bell Aliant.
The company continues to replace its copper-wire cables with fibre optic lines. This lets it sell more high-speed Internet and digital TV subscriptions, and offset declining sales of its regular phone services, which still supply 60% of its revenue.
Bell Aliant expects to spend $550 million to $600 million on network upgrades in 2012, compared to $573 million in 2011. Its fibre optic systems now reach 621,000 homes. The company plans to increase that to 650,000 by the end of 2012.
In the three months ended September 30, 2012, revenue fell 0.4%, to $697.4 million from $700.2 million a year earlier. Gains from Internet TV (up 86.1%), wireless (up 9.7%) and high-speed data (up 7.9%) offset lower revenue from local phone service (down 5.0%) and long distance (down 12.0%).
Even with the lower revenue, Bell Aliant’s earnings rose 21.3% to $92.2 million, or $0.40 a share. A year earlier, it earned $76.0 million, or $0.33 a share. The higher earnings are partly due to savings from a recent restructuring, which mainly consisted of job cuts. If you exclude all unusual items, earnings per share would have risen 14.6%, to $0.47 from $0.41.
Bell Aliant trades at a reasonable 15.9 times its projected 2012 earnings of $1.70 a share. The $1.90 dividend yields 7.0%.
Broadcast regulators recently blocked BCE’s $3.4-billion deal to buy Astral Media. BCE might apply this cash to buying the 55% of Bell Aliant that it does not already own. That alone is not enough reason to buy the stock, but it adds to its appeal.
Bell Aliant is a buy.
