BCE is still lucrative for Long Term Prospects

Article Summary:

Company is on track to meet its yearly guidance for 2014.

The dip has been rightly attributed to the complete privatization of Bell
Aliant.
Price targets are very attractive for long term investors.
Strong fundamentals give the company a buy rating for the longer term.

BCE Inc. (BCE) functions through two operating units, Bell Canada and Bell
Aliant (BA). Through Bell Canada, it provides services in telecom and media
sectors, whereas Bell Aliant is focused only on regional communication services
across Atlantic Canada and non-urban areas of Ontario and Quebec. This Canadian
giant is among the three big companies who have captured more than 90% of the
telecom-wireless market in Canadian telecom sector. Bell Canada holds
approximately 28%, Rogers Communications Inc. (RCI) holds 35% and Telus
Corporation (TU) holds approximately 27% of this market share. Apart from growing
wireless segment, Bell Canada has a solid presence in Wireline and Media
segments.
In an earlier article, I explained why the stock price of BCE was trending downwards,
and why it was an opportunity to take exposure in companys stock. At the moment,
the stock has soared to approximately $46. And the fundamentals look favorable for
further appreciation. Let me first present a brief overview of third quarters earnings
released on 6th November.
BCE Inc. is on Track to Meet its Yearly Guidance:
Driven by handsome growth, BCI posted a handsome 600 million CAD (1 USD = 1.1
CAD) in net earnings to common stockholders; up from 343 million CAD from
comparable quarter yoy. This represents an increase of approximately 75%.
Similarly, earnings per share rose by 75% to 0.77 from 0.44 yoy. Thus, BCE had a
great third quarter and generated handsome shareholder value.
Finally, it is worth mentioning that the company is on track to meeting its yearly
guidance for the whole year as forecasted in the guidance on February 6 th, 2014.
Source: Company Financials

Thus, companys fundamentals are strong and havent shown any sign of
turbulence.
The Dip was Attributable to the Privatization of Bell Aliant:
With strong fundamentals and stable growth prospects, the companys stock is still
well poised to appreciate. A part of the appreciation has been achieved as the stock
has handsomely risen in value in the last month.
The dip was predicted to emerge as a result of the privatization, which BCE had
earlier announced. BCE aimed at completely acquiring Bell Aliant, of which it
previously held 44%. In order to complete this transaction, BCE was to buy the
remaining 127.5 million shares held by Bell Aliants shareholders. For this, the
company had proposed three modes of payment. One, the shareholders can sell
their stake in the company for $31 per share in cash. Two, they can sell their shares
for 0.6371 BCE common shares against one share in Bell Aliant. Three, they can
choose to opt for a combined cash and share alternative with $7.75 in cash and
0.4778 in BCE common stock. This is where the origin for price decline lied. Before
acquisition announcement, Bell Aliants stock was trading around $27. After the
announcements impact was priced in to Bell Aliants stock, the stock soared to
$31.53. For the ease of investors, let me point out that it is a zero sum transaction
in which no value is created. Therefore, this price increment for Bell Aliants stock
had to be reimbursed by somebody else, which in this case is the parent company
BCE Inc., and in turn the shareholders of BCE. This was the main reason as to why
BCEs stock price declined despite strong fundamentals.
Now, it is clear that the impacts of such privatization are gone, and the company is
pursuing uptrend as the fundamentals predicted. Ill recommend investors to keep
holding the stock as the stock is expected to go up further.
Valuation:
Following is the valuation provided by 13 analysts, which presents a quite attractive

price valuation.
A look at the high and low price targets shows very minimal variation, exhibiting
strong consensus in the estimates. The mean target of 52 CAD seems quite
achievable at the moment given the fact that the company has sprung back nicely

after the dip. In my estimate, I believe that even the high price target of 57 is still
achievable as I cant see any major hindrance barring the company from achieving
this level.
Final Remarks:
BCEs shareholders have paid for the increase in Bell Aliants stock, and potential
investors were justified in their reluctance to buy BCE earlier. However, everything
has fallen back to its place now, and BCE has emerged as a strong candidate to be
considered for investment. BCE will grow further strong and more profitable
courtesy of its strong fundamentals. Therefore, Ill recommend those already
holding the stock to continue holding. And even for those who are looking to buy the
stock, this is a good time to take exposure in BCE.