BCE’s wireline business now viewed as benefit rather than hindrance

Long seen as a barrier to growth, BCE Inc.’ s heavy wireline exposure could now prove to be a strong point, particularly given the threat of intensifying competition in Canada’s wireless market.

The telecom giant’s wireline business, which includes its Fibe TV, Internet and home phone offerings, represents nearly 60 per cent of revenue and EBITDA. Since this is high relative to BCE’s peers, it has hindered the company’s growth, as has its underperformance in wireless.

But recent gains in the wireline segment should not be underestimated. Drew McReynolds, an analyst at RBC Capital Markets, upgraded BCE to outperform from sector perform as he sees an inflection point.

He is forecasting wireline revenue and EBITDA growth in the low single digits, driven by market share improvements in both residential television and Internet. He also highlighted lower network access service line losses, a less negative business market trajectory with possible upside coming from a strengthening economy in Eastern Canada, and ongoing cost efficiency efforts.

McReynolds also expects BCE to lead the way in terms of key wireless metrics, which should translate into highsingle-digit EBITDA growth in this area.

His forecast for net asset value growth of more than nine per cent compounded annually through 2017 almost matches that of Cogeco Cable Inc. (13 per cent) and Telus Corp. (10 per cent).

“While the substantial NAV growth differential to Rogers is unlikely to be sustained indefinitely, the momentum runway for BCE looks clear through 2015 and into 2016,” the analyst said, raising his price target on the stock to $57 from $54.

“We expect 2015 to represent an inflection point whereby annual wireline revenue and EBITDA growth turn positive, at minimum, for the next two to three years driven by market share gains and an improving revenue mix.”