BCE Inc. downgraded with limited upside

Despite the earnings boost coming to BCE Inc. now that it has received federal approval for the $3.9 billion takeover of Manitoba Telecom Services, TD Securities doesn’t see much upside in the stock.

Vince Valentini downgraded BCE to hold on Thursday, and trimmed his price target to $59 from $64, telling clients that he cannot justify a buy rating at current valuations.

The analyst noted that in the nearly 10 months since he last published on BCE, interest rates have risen.

In addition, he said the CRTC has lowered wholesale rates for Internet resellers.

Valentini also sees the threat of competition heating up in 2018, with Shaw Communications Inc. having an upgraded wireless/LTE network, and with Rogers Communications Inc. expected to have its X1 video platform.

Meanwhile, the analyst cautioned that it could take another seven or eight years for Bell to complete its fibre-to-the-home upgrades.

“BCE provides attractive dividend growth and income, but we do not envision any more large/ accretive acquisitions and we do not predict material share-price upside from current levels (unless interest rates go back down),” Valentini said.

TD forecasts a 20 per cent increase in 2018 free cash flow for BCE (versus 2016) to $4.45 per share, as the company benefits from MTS synergies.

And while the Street’s estimates have been “all over the map,” Valentini anticipates meaningful increases in 2018 consensus EBITDA and FCF forecasts as analysts “properly integrate MTS and the synergies into their models.”

Considering the financial terms, Greg MacDonald at Macquarie Capital Markets considers the deal slightly positive for BCE, and slightly negative for Shaw.