BCE Inc

BCE

BCE Inc

@andrewt
• 10 months ago

Understanding the Income Statement

BCE is of Canada's largest, most important, and most powerful corporations. Named after Alexander Graham Bell, BCE is a holding company for:

  • Bell CTS (Communication and Technology Services), which provides telecommunication services, internet, and cell phone coverage across Canada

  • Bell Media, which provides digital media, audio, video, and advertising to customers across Canada

BCE's stock is below $40 for the first time since 2012 (and down 26% over the last year). I wanted to find out why.

The company earned $24.41B in revenue in 2024, a drop of -1.1% from the year before. Overall, revenue has a CAGR of 1.5% over the last 10 years.

Operating expenses and operating income have both risen at around 1.2% / 1.4% CAGR over the last 10 years, helping operating margin remain stable (0.1% CAGR over the last 10 years). Gross margin has held between 68% and 70% over the last 10 years (Warren Buffett likes companies with a gross margin over 40%).

A big story of BCE was a $2.19 billion impairment charge: the company had to write down value for media companies they previously acquired. This is non-recurring.

Moving forward, BCE aims to aggressively manage costs while focusing on being the best possible telecom company. The company recently reduced 4,800 positions and sold its stake in MLSE (worth about $4.7 billion). They also acquired Ziply Fiber for $3.6 billion in 2024 to help compete in the oligopoly of the Canadian telecom space).

On the positive side, BCE seems to have stable free cash flow and strong margins. Its net income slumped due to a large impairment charge, but it's non-recurring.

On the negative side, BCE is facing the same hurdles of other telecom giants: slowed subscriber growth, increased competition, and regulatory headwinds (say, if the CRTC mandates wholesale access to BCE's fiber network and allows smaller ISPs to compete, which would destroy one of BCE's moats). The company also has a lot of debt and a potentially unsustainable dividend (5.30%).

Overall, Canadian telecoms are a weird space: they're an oligopoly protected from competition by government regulations, which kind of creates an artificial moat. However, they're also massive, diversified entities that supply critical telecommunication services to one of the largest economies on the planet while offering strong cash flow and an attractive dividend.