Excellent Analysis from RBC...Besides the technical analysis, here's a very positive fundamental analysis from RBC:
BCE is Well Positioned for Where the Puck is Going.
Over the next 3-5 years, a number of trends are expected to emerge across the Canadian telecom sector, including greater bundling activity, wireless-wireline network convergence and growth in 5G-driven B2B segments such as IoT, MEC, private network, cloud and security. BCE highlighted a number of strengths to capitalize on these trends, including: (i) the largest integrated wireline-wireless footprint in Canada covering 75% of households; (ii) expanding FTTH coverage (~70% of its targeted broadband footprint) with BCE on track to reach 10MM broadband premises by 2025 (including 1MM fixed wireless access premises); and (iii) business market leadership, particularly in enterprise providing BCE with unique opportunities to develop a wider array of technology/infrastructure solutions across multiple 5G-driven B2B segments. Furthermore, with a now smaller non-FTTH footprint and a declining contribution from legacy revenues, management indicated BCE increasingly has the strategic and financial muscle to be more price-aggressive in order to capture incremental market share (ongoing residential Internet subscriber and revenue growth being a case in point) with such a strategy further underpinned by a continuous reduction in the cost-to-serve (including the realization of network- and AIdriven cost efficiencies).
Staring at a mid-2020s material step-up in FCF. Management reiterated that BCE remains on track to substantially complete its accelerated FTTH build by the end of 2025 (facilitated by now easier municipal permitting) setting up for a sustained step-down in capex to the ~$4B level beginning in 2026 (translating to 15%-16% capex intensity and versus a peak of ~$5B in 2022). While fiber-related investment is expected to continue post-2026 along a path to symmetrical 25Gbps and eventually 50 Gbps, the incremental capex requirements to do so are “not a big lift”. Alongside ~$200MM in lower regular pension funding, BCE is expected to generate an incremental $1.2B in annual FCF that can be deployed into other investment opportunities and M&A (likely including tuck-ins across select 5G-driven B2B segments) and/or an enhanced capital return program of dividend growth and share repurchases (i.e., above and beyond the company’s longstanding +5% annual dividend growth commitment). Reflecting advanced FTTH deployment in Canada and an industry structure comprising predominantly integrated wireless-wireline operators, management believes telecom operators like BCE are well positioned to play key value-added roles in creating and delivering advanced solutions across emerging 5G-driven B2B platforms and ecosystems.
Seeking out incremental wireless growth opportunities. Management believes the current wireless industry looks to have a longer growth runway than previously expected driven by population growth (immigration, students, foreign workers). Consistent with the company’s long-standing track record of very strong tactical execution, management sees its new partnership with Air Canada as one way to capture a greater share of Canada’s immigration activity offering e-SIMs on select inbound international flights (with Rogers garnering the most market share of this cohort at the moment).