Let's see what BCE has to say.
08:19 AM EDT, 09/01/2023 (MT Newswires) -- TD Securities downgraded BCE Inc. (BCE.TO) to Hold from Buy on Friday.
Analyst Vince Valentini lowered his price target on shares of the Canadian media and telecom company to $58 from $61.
"It has come to our attention that our definition of FCF for BCE, which we use for things like dividend payout ratios and P/FCF multiples in our comp table, has been overlooking a key recurring cash outflow for many years," Valentini said in a note to clients.
"We apologize for the historic oversight, but we must note that: a) others in the Street have also seemingly been missing this item and b) disclosure of this item has been buried deep in the notes to financial statements, and the figure has never been shown as a separate line item in the income statement, cash flow statement, or balance sheet," the analyst said.
Valentini said the item is cash costs related to the repayment and servicing of capital leases. This has caused a reduction in the analyst's FCF estimates by $550 Million per year.
"Our new FCF estimates raise serious questions about dividend quality and dividend sustainability," Valentini said. "A big reason why BCE is trading at a premium valuation to peers (notably TELUS and Rogers), in our opinion, is because of its industry-leading dividend yield, combined with consistent 5% dividend growth."
"If the yield is being boosted by a chronically high payout ratio, then we would argue that it should be given less valuation credit by investors," he said.
(MT Newswires covers equity, commodity and economic research from major banks and research firms in North America, Asia and Europe. Research providers may contact us here: https://www.mtnewswires.com/contact-us)