RE:RBC Latest Outlook and PT For BCE - $57 CADAnd for those of you who like to read the finer details, this is from RBC's Feb 8th analysis:
Scenario Analysis*
Downside Scenario 46.00 2%
Current Price 51.08 Price Target 57.00 19%
Upside Scenario 62.00 29%
Correction: In my previous post I mentioned RBC's downside scenario was $48 and it should have been $46...my apologies. On the other hand, RBC has maintained the Sector Perform rating and $57 PT in today's update holding steady since their Feb 08 analysis HB77
February 8, 2024
BCE Inc.
Underlying Growth Intact; Trimming Price Target on FCF Recalibration
Our view: Q4/23 results and 2024 revenue and EBITDA growth guidance were in line with our expectations. Following a recalibration of our FCF forecast (mainly restructuring charges and working capital), our price target decreases from $59 to $57.
Key points:
• Navigating a slower revenue environment. We believe BCE is well equipped to navigate a slower revenue environment leaning on a scale advantage, continued FTTH investment and Internet market share gains, the realization of cost efficiencies, and an extensive array of tactical initiatives across wireless, wireline and media. We believe underlying FCF in the current growth environment should continue to support low-single digit dividend growth underpinned by ongoing structural cost efficiencies and what is likely a permanent step-down in capex following three years of elevated FTTH investment. While we see more attractive growth and valuation set-ups elsewhere in the sector at the moment, we continue to view BCE as a higher-quality core holding that is well positioned to benefit from network convergence and long-term growth in 5G B2B (IoT, MEC, private network, cloud, security).
• A recalibration of our FCF forecast. For 2024, management expects FCF growth of -11.0% to -3.0% translating to $2.8B-$3.1B versus $3.1B in 2023. While the previously-announced ~$500MM reduction in capex YoY initially pointed to FCF growth for 2024, FCF will be impacted by a ~$365MM working capital drag combined with an incremental ~ $320MM in cash severance (the restructuring program of which was widely anticipated with working capital and restructuring costs included in the company's FCF definition). With working capital and restructuring impacts of this magnitude unlikely to be recurring going forward, our forecast translates to normalized mid-to-high single digit FCF growth beginning in 2025E translating to a gradual decline in the dividend payout ratio from ~100%-120% through the 2021-2024E period to 98% in 2025E and 91% in 2026E. Assuming no meaningful changes to the growth, competitive, interest rate or regulatory environments, key underlying FCF drivers through the medium term will be lowering the cost to serve and a further step-down in capex upon completion of the fiber build.
• Other notables from the quarter. (i) excluding a $300MM reduction in revenues in 2024 due to The Source/Best Buy partnership, underlying growth guidance is consistent with that in 2023; (ii) excluding the impact of higher cash severance in 2024, underlying FCF guidance would have been flat to +7%; (iii) Bell Media announced its intention to divest 45 of its 103 radio stations to seven buyers; (iv) management indicated that the building blocks are now being put in place to transition from "Telco to Techco"; and (v) adjusted EBITDA margins and leverage are expected to be stable YoY in 2024.