Q: I’m thinking of a trade with BCE stock. My thinking is even if management cuts the dividend by half I will be making 6% with the likelihood the stock price will go up what do you think of this trade. Also what do you think of the new asset Ziply and my understanding BCE is using funds from the sale of the sports teams to Roger’s so how bad is there balance sheet really?
5i Research Answer:
Please also reference this answer from today. Pre-recent transactions, BCE had $38B in debt and $7B in cash flow, for a 5X ratio. That is fairly steep, considering free cash flow is only $3.5B. Debt has increasaed every single year since 2016. The sale of Maple Leaf Sports does not completely offset the Northwest Fibre purchase. We think the purchase is likely the right move, but the timing was wrong, as the company specifically said it wanted to reduce debt. The 'flip flop' of management has hurt credibility, and it shows in the stock price.