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National Bank downgrades BCE, adjusts telco stock price targets

BCE and Telus could face stiffer competition if the Rogers-Shaw deal and Freedom Mobile sale go through, the analyst says.

EATON CENTRE, TORONTO, ONTARIO, CANADA - 2015/05/13: Entrance to Bell Store in the Eaton Centre: Bell Telephone Company remains a modern company providing telecommunications products for more than a hundred years. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
National Bank telecom analyst Adam Shine downgraded his stock recommendation on BCE Inc, and lowered his 12-month price target. (Photo by Roberto Machado Noa/LightRocket via Getty Images) (Roberto Machado Noa via Getty Images)

National Bank telecom analyst Adam Shine is making a number of changes to his price targets and has downgraded his recommendation on Canada’s biggest telco company.

Shine lowered his rating on BCE Inc. (BCE.TO BCE) to sector perform, from outperform, in a note to clients on Wednesday, and lowered his 12-month price target by three dollars to $63.00 per share.

He noted Bell has benefited from some tailwinds in its wireless segment and has gained market share in home wireline services, thanks in part to its ongoing fibre network upgrades.

Shine forecasts BCE's revenue and adjusted profit this year will grow slightly less compared to 2022, while the company's dividend is poised to continue growing.


Meanwhile, wireless competition is set to intensify if the takeover deals for Shaw Communications and Freedom Mobile close.

“We expect the eventual closing of the Shaw and Freedom deals, subject to the Competition Bureau's appeal(s) and ISED approval, to add to competitive intensity in Ontario, Alberta, and British Columbia,” he said.

The biggest concession Rogers Communications Inc. (RCI.B.TO RCI) has offered to get its proposed takeover of Shaw to the finish line is to sell Freedom Mobile to Quebecor. The Rogers-Shaw transaction still faces challenges by regulators.

Despite the uncertainty around the deal, he said he’s factoring in Shaw to his financial forecasts for Rogers as of early 2023.

Shine maintained his rating on Rogers at outperform and hiked his 12-month price target to $78.00 per share, from $75.00.

Similar to BCE, Telus Corp. (T.TO TU) could face increased wireless competition from the Shaw and Freedom Mobile sales, he said.

Shine maintained his outperform stock rating but lowered his 12-month price target on Telus shares to $31.00, from $34.00.

He highlighted a number of achievements and upcoming tailwinds for the company.

“Telus has enjoyed a premium valuation given its verticalization strategy in Wireline as a point of differentiation and given relatively less competition faced out West,” he said.

“After the successful IPO of Telus International whose valuation has since materially reset, we await future monetization opportunities related to Health and Agriculture.”

He also said the company is set to see its free cash flow jump after finishing buildouts of its fibre network and some pending cost savings following its LifeWorks acquisition.

Another risk for the telecom industry in general is the appointment of Vicky Eatrides as the new chair of the Canadian Radio-television and Telecommunications Commission.

“Look for the new CRTC chair to pursue a more pro-consumer tack than the pro-industry skew of her predecessor,” Shine said.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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