Analysts update BCE forecasts after $3.9-billion MTS deal closes


Bay Street reacted positively to last week’s successful closure of BCE Inc.’s $3.9-billion acquisition of Manitoba Telecom Services, with analysts at CIBC and BMO updating their forecasts now that the combined entity Bell MTS is the market leader in Manitoba.

Citing benefits to free cash flow and dividend growth potential, CIBC reinstated its coverage of BCE after a 10-month restriction, analyst Robert Bek wrote in a Monday research note.

“We see strong opportunities for cost synergies as a result of MTS, and view the company’s rough guidance of $100 million in annual savings as the low end of opportunity,” Bek wrote.

“We also see some revenue potential from its now-dominant competitive position in Manitoba.”

CIBC maintained its view of BCE as neutral despite improvements to yield safety, although Bek did call Bell “a leader in the yield safety trade in Canada.”

BMO analyst Tim Casey was more optimistic, rating BCE outperform compared to its peers.

While the transaction was “relatively small,” it improved dividend growth, geographic diversification, economies of scale and the potential for bundling wireless and wired products, Casey wrote in a research note Monday.

But Casey noted the deal had broader implications for acquisitions under the Liberal federal government, which has largely left telecommunications issues in the background unlike its predecessor, which focused on increasing competition by favouring new market entrants.

The concessions Bell made to get approval from the Competition Bureau — divesting customers and stores to Telus Corp. and Xplornet, a rural broadband player that has never before offered mobile plans — were “relatively benign,” Casey noted.

“Xplornet’s entry into wireless is unlikely to disrupt the oligopoly,” he wrote, adding that Shaw Communications Inc. missed a “rare and cost-effective opportunity” to enter the Manitoba market.

He expects the feds to continue the four-player policy, favour new entrants in future 600 MHz spectrum auctions and enforce prior in-band spectrum caps, which could affect how Quebecor Inc. deals with its non-core spectrum.

“As the M&A spotlight turns to SaskTel, politics could trump any potential bids,” he said.

Saskatchewan Premier Brad Wall ruled out fully privatizing SaskTel, but left the door open for a private entity to buy up to 49 per cent of the Crown corporation.

Both BMO and CIBC set BCE’s price target at $60. BCE will update its 2017 guidance when it releases its first-quarter results in April.

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