ECB (ECB, $40.45): major acquisition in the United States and dividend freeze
Before the opening of the stock markets on Monday, BCE announced the acquisition of the American company Ziply Fiber for an amount of $7 billion (G$) including the assumption of a $2 billion debt.
Ziply Fiber is a fiber optic Internet access provider in the Northwest Pacific region of the United States and will allow BCE to add 1.3 million locations to its North American network, which totals 9 million. This is a first foray into the United States for the Canadian telecommunications service provider.
BCE will use an amount of $4.2B obtained from the sale of its stake in Maple Leafs Sports & Entertainment (MLSE) to finance the transaction.
"Ziply wants to reach 3 million locations within four years," says Adam Shine, an analyst at Financire Banque Nationale. The latter adds that BCE's North American network should then have 12 million.
BCE also announced that it was ceasing to increase its annual dividend, which will remain at $3.99 by the end of the 2025 financial year. "ECB suspends dividend growth until its distribution ratios and net financial leverage are close to the target ranges established in its policies, subject to an annual review by its board of directors," the company said in a statement.
"The news of the acquisition in the United States is a surprise, while the ECB stock is underperforming compared to its peers. Even if a significant portion of the transaction will be financed by the amount obtained in the sale of MLSE's stake, the debt ratio will remain high at 3.7 times the profit before taxes, interest and depreciation (EBITA)," writes Adam Shine.
The latter also points out that the transaction is coming at a time when competition in Canada has undermined the valuations of companies in the telecommunications industry.
"Even if shareholders have to deal with these problems in Canada, they will need time to digest a U.S. incursion. We anticipate that the share price will remain under pressure for the next few quarters," he believes.
The ECB stock closed Monday's session down $4.34, or 9.69%, to $40.47. For its part, Adam Shine maintains its industry-matched performance recommendation on the company's stock, but its one-year target price decreases, from $48 to $42.