Tough times for Bell Canada

Bell stockholders must be patient because of the company’s difficulties.

• Also read: BCE announces third quarter loss

• Also read: Bell Canada (BCE) is struggling, its title soon “at risk” according to Moody’s

It was a trying last week for BCE and its shareholders, which saw the company make decisions that were not unanimous. Purchase by debt of an American internet provider (Ziply) at a cost of $5 billion, capping of the dividend to shareholders, quarterly loss of more than a billion dollars… Result: in one week, BCE’s action lost some 13% of its value.

The title wears out the patience of shareholders. Since the explosion of the techno bubble in 2000, Bell’s stock has been flatlined.

“BCE still has many challenges ahead, particularly due to deteriorating wireless growth and an increased risk profile [à la] suite [de] the announcement of the acquisition of Ziply. On a positive note, the company’s margins have been the highest in over 30 years and there is still much to do to reduce costs,” underlines Jérôme Dubreuil, analyst at Desjardins.

Just yesterday, BCE shares (BCE-T) on the Toronto Stock Exchange were still down nearly 2% at $38.79 at the close of financial markets.

Expensive acquisition

On Monday, November 4, Bell Canada’s stock lost some 10% and fell to a low not seen since 2012 after the announcement of the acquisition of an American internet provider for $5 billion and freezing its dividend to shareholders.

Bell will acquire Ziply Fiber, a company present in four states in the American Northwest, which will allow it to add 1.3 million locations connected to optical fiber to its network.

But to finance this ambitious transaction, Bell still has to resort to debt. It will use $4.2 billion in funds from the recent sale of its stake in MLSE, the parent company of Toronto’s major professional sports teams.

The same day, the company announced that dividend growth would be suspended at least for the next year, while it improves its debt ratios. This dividend is currently $3.99 per share.

Losses of more than a billion

Last Thursday was the day the quarterly results were announced. BCE announced a net loss of 1.23 billion, or $1.36 per share, for its third quarter. The stock therefore lost almost 3%.

In comparison, in the same quarter last year, BCE generated a net profit of $640 million.

Bell says it faces strong competition in wireless and a high rate of churn and cancellation of telecommunications services.

Lourdes this

BCE carries a heavy debt, of nearly $40 billion, which is growing faster than its profits, to the point where the company’s bonds could become junk bondsor “risky” investments, warned the rating agency Moody’s a few weeks ago.

“Junk” bonds are bonds (corporate debt) that carry a higher risk of default than most bonds issued by companies and governments.