Citing “a slower growth outlook based on competitive pressures in core wireless and wireline operations, particularly in Quebec and challenging comps in media,” BMO Nesbitt Burns analyst Tim Casey downgraded both BCE Inc. and Quebecor Inc. to “market perform” recommendations from “outperform” on Tuesday.
“We expect it will impact both wireless and wireline revenue and consolidated EBITDA through 2025,” he said in a pair of reports released before the bell. “We expect the impact of competitive pressures will be reflected in both wireless and wireline service revenues and consolidated EBITDA. We expect operating conditions in Quebec to remain very challenging given price competition in legacy wireline from Quebecor. Rogers FWA products and (eventually) MVNO wireless options from Cogeco will impact the market at the margin but will be an incremental negative.
“Our loading assumptions are relatively unchanged as we expect robust conditions to remain in 2024. The government recently outlined plans to slow immigration beginning in 2025. The new rules are targeted to return to 1-per-cent growth of 0.5 million per annum (vs. 3.2 per cent in 2023). This policy should be viewed in the context of a federal election in 2025.”
After reducing his forecasts across the sector, Mr. Casey cut his target for BCE shares to $46 target from $54. The average target on the Street is $54.29.
“While some of this is priced into the stock given a share price down 12 per cent year-to-date, we do not foresee a fundamental catalyst to revise estimates higher in the near term,” he said. “We are lowering target price multiples across the sector.”
His Quebecor target is now $33, falling from $42 and below the average of $39.02.
He also lowered his targets for these companies:
• For Rogers, we expect the pressure will be reflected in lower cable revenue and EBITDA. We think wireless operations will continue to reflect Rogers operating momentum,” he said to $65 from $80. Average: $74.83. * Telus Corp. (T-T -0.69% decrease, “outperform”) to $24 from $26. Average: $26.19.
“We are trimming our Q1 estimates based on timing issues related to capex spend and a recovery in margins at TIXT. Our full-year outlook is for modest negative revisions as competitive intensity remains elevated in 1H24. We believe TELUS’s cash flow will be less impacted than peers based on business mix and regional exposure,” said Mr. Casey.