bce

In 2011, the Canadian government will begin taxing income trusts (with the exception of real estate investment trusts, or REITs). The effect the tax change will have on Canadian investors’ portfolios is something we’ve often discussed in our Canadian Wealth Advisor newsletter. When the income-tax benefits of Canadian income trusts are eliminated, some may convert to conventional corporations — the same structure as most common stocks. Others may choose to remain as trusts. Either way, some Canadian income trusts will cut their distributions. That’s because their cash available for distribution to unitholders will fall after they begin to pay corporate taxes and can’t pass it all on tax-free....

BCE INC., $25.46, Toronto symbol BCE, continues to lower its costs in the face of tough competition for new phone customers. Its current restructuring plan, which includes cutting jobs, relocating employees and selling surplus real estate, should save the company $400 million a year, starting in 2010. In the three months ended June 30, 2009, BCE’s earnings rose 5.2%, to $447 million from $425 million a year earlier. Per-share earnings rose 9.4%, to $0.58 from $0.53, on fewer outstanding shares. These figures exclude costs related to the company’s restructuring and other unusual items. Revenue fell 2.1%, to $4.3 billion from $4.4 billion. The company continues to lose residential phone customers to cable companies and wireless providers, but these losses are slowing. As well, the recession is weighing on BCE’s wireless operations, which signed up 45,000 new customers during the quarter, compared to 83,000 a year earlier. Revenue per wireless user also fell by 4%. However, revenue from BCE’s satellite-TV services gained 9.3%, and high-speed Internet revenue rose 2.8%....

BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $26.60 (Toronto symbol BA.UN: SI Rating: Above Average) has over 3.1 million telephone customers in Atlantic Canada and rural parts of Ontario and Quebec. BCE owns 44.1% of Bell Aliant. In the three months ended March 31, 2009, the fund’s earnings rose 9.3%, to $0.59 a unit from $0.54 a year earlier. Cash flow per unit rose 2.5%, to $0.82 from $0.80. The gains came from a 7.9% rise in the number of high-speed Internet subscribers, plus ongoing cost cutting. However, revenue fell 2.9%, to $790 million from $813 million, as lower local and long-distance revenue offset strong demand for high-speed Internet and data services. Bell Aliant now aims to spur growth by expanding the availability and capacity of its high-speed Internet service, which generates higher profit margins than its traditional telephone operations....

CANADIAN PACIFIC RAILWAY LTD., $47.90, Toronto symbol CP, reported higher profits for its latest quarter, as a gain on the sale of an investment helped it overcome a 24% drop in freight volumes caused by the recession. In the three months ended June 30, 2009, CP’s earnings rose 1.7%, to $157.3 million from $154.7 million a year earlier. Earnings per share fell 7.0%, to $0.93 from $1.00, on more outstanding shares. (In February, CP sold 13.9 million shares at $36.75 each. That increased the total outstanding by about 9%). The latest earnings included a $68.7-million gain on CP’s sale of part of its stake in the Detroit River Tunnel Partnership, which operates a rail tunnel between Detroit and Windsor, Ontario. CP now owns 16.5% of this business, down from 50%. The sale freed up cash that CP used to pay down debt, while preserving its right to keep operating the tunnel. CP’s $4-billion long-term debt is now a manageable 49% of its $8.2 billion market cap....

BCE, $24.99, symbol BCE on Toronto (Shares outstanding: 767.8 million; Market cap: $19.2 billion), has over 7.5 million telephone and Internet customers in Ontario and Quebec. It also has 6.5 million wireless subscribers across Canada. BCE continues to lose traditional phone customers, but these losses are slowing. Meanwhile, BCE’s cellphone business is growing strongly. BCE shares yield 6.2%. Bell Aliant Regional Communications Income Fund, $26.50, symbol BA.UN on Toronto (Units outstanding: 127.2 million; Market cap: $3.4 billion), has 3.1 million traditional phone customers in Atlantic Canada and rural parts of Ontario and Quebec. As part of the deal that created the trust in 2006, Bell Aliant transferred most of its wireless business to BCE, which owns 44% of Bell Aliant. Like BCE, Bell Aliant is losing traditional phone customers, but strong demand for high-speed Internet service is helping it offset those losses. Bell Aliant yields 10.9%. Under Ottawa’s new tax rules for income trusts, Bell Aliant will have to start paying income taxes at the same rate as a regular corporation in 2011. It has tax losses from prior years that it can use to reduce or defer its tax bill until 2012, but it will probably convert into a corporation after these expire. BCE may try to buy the trust before this point. On its own, that’s not reason enough to invest, but the possibility of a takeover adds appeal....

BCE INC. $24.87 (Toronto symbol BCE; Shares outstanding: 767.8 million; Market cap: $19.1 billion; SI Rating: Above Average) will pay $142 million to buy the 50% of Virgin Mobile Canada that it doesn’t already own from its joint-venture partner, U.K.-based The Virgin Group. In 2004, BCE and The Virgin Group teamed up to market low-cost cellphones to younger consumers. Virgin uses BCE’s wireless network. This new deal gives BCE the right to use the “Virgin” brand. As well, owning all of Virgin will help BCE fend off new wireless competitors that plan to start operating later this year. BCE is still a safety-conscious buy.

TELUS INC. (Toronto symbols T $30 and T.A $29; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 318 million; Market cap: $9.5 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) hopes to improve its sales by bundling its phone and Internet services with satellite TV. Under a new deal with BCE INC. $24 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 780.6 million; Market cap: $18.7 billion; Price-to-sales ratio: 1.1; SI Rating: Above Average), Telus will sell BCE’s satellite-TV service in Alberta and British Columbia under the Telus brand. BCE and Telus will share the proceeds from these sales. The deal also lets BCE keep selling satellite service in the same region under the “Bell TV” name. Telus is a buy. The cheaper, non-voting “A” shares are the better choice. BCE is also a buy.

BCE INC. $26.07 (Toronto symbol BCE; Shares outstanding: 803.1 million; Market cap: $20.9 billion; SI Rating: Above Average) has agreed to buy back and cancel 10.3 million of its common shares. The company is authorized to buy back up to 40 million (or 5%) of its outstanding shares. This move will increase the value of the remaining shares. BCE plans to finish the buyback by the end of May. Based on today’s share price, it will cost the company roughly $267 million. BCE can easily afford this; it earned $1.8 billion, or $2.25 a share, in 2008. It also holds cash of $3.1 billion, or $3.81 a share. BCE is a buy.

LINAMAR CORP., $8.24, Toronto symbol LNR, jumped 80% this week after it reported better-than-expected first-quarter results. Linamar sells transmissions and other parts to several carmakers. This business accounts for about 85% of its revenue. The company also makes self-propelled, scissor-type elevating work platforms under the Skyjack name, plus consumer products, such as lawnmowers and cargo trailers. Linamar lost $12.6 million, or $0.19 a share, in the three months ended March 31, 2009. However, this was mainly caused by an $11.7-million writedown of goodwill. As well, slowing demand from carmakers prompted Linamar to cut its workforce by 12%, or 1,300 employees. This resulted in $4.4 million in severance payments. Without these items, the company lost just $0.01 a share. That’s a lot better than the loss of $0.15 a share that analysts were expecting. In the year-earlier quarter, Linamar earned $29.5 million, or $0.43 a share. Its sales fell 30.9%, to $424.9 million from $614.5 million....

Brookfield Asset Management 4.75% Series 17 Preferreds, $14.85, symbol BAM.PR.M on Toronto, are perpetual preferred shares. That is, they have no fixed maturity date, and they have to pay their stated dividend forever, or “in perpetuity,” before they can pay common dividends in any given year. The shares began trading at $25 each in late 2006, and have fallen steadily since. In general, the prices of preferred shares are down lately, in spite of lower interest rates. There are a number of likely reasons for this: Preferred shares behave more like long-term, fixed-income instruments rather than short-term investments. While short-term interest rates are falling, the outlook for long-term rates is less certain....