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Since 5G technology first made landfall in 2018, courtesy of Verizon Communications, major economies have been trying to commercialize the technology to boost its digital infrastructure and connectivity. Canada has been one of the leading players in the battle for dominance, marking the commercial rollout of the technology in mid-2020.
The Huawei Technologies controversy slowed down the country’s 5G launch date, as Canada banned exports from the biggest 5G equipment manufacturer over national security concerns. However, re-established ties with European equipment manufacturers and domestic companies rising to the occasion has allowed Canada to join the 5G gang amid a global pandemic.
Some of the biggest Canadian companies expected to benefit from nationwide commercialization of 5G are:
BCE, Inc. (TSX: BCE)
BCE’s subsidiary Bell Canada Enterprises is one of the largest telecom and wireless operators in Canada, with a market capitalization value of C$50.4 billion. The company launched its largest ever network plan in June 2020, providing 5G coverage across Montreal, Edmonton, GTA, Vancouver and Calgary. The company has partnered up with Swedish telecommunications equipment provider Ericsson to expand its connectivity to interior Canada through Ericsson Radio Access Network technology.
BCE plans to spend an additional C$1 billion to fuel its 5G segment over the next two years, as reported last month. The company announced its target of installing over 900,000 fiber and rural wireless home internet connections. Bay Street estimates this project to add upward of $2 billion to the country’s GDP, owing to the rising demand for remote working jobs.
BCE’s ambitious plans are backed by sturdy financials and cash flows, making the company well-positioned to dominate the Canadian 5G space in the long run. It generated $6.1 billion as net operating cash flow over the past year, with a cash balance of $176 million at the end of the trailing 12-month period. The company has generated $17.89 billion in revenues in the last year, while its bottom line was $2.07 billion over this period. Furthermore, its quarterly EPS has risen 29.7% year-over-year, equating to a trailing 12-month EPS of $2.17.
With a trailing 12-month gross profit margin and dividend yield of 41.8% and 5.7%, respectively, BCE is one of the most coveted stocks among growth and income investors alike. The company’s past price performance indicates modest gains and steep declines over the past couple of months, accruing from the pandemic disruption. However, BCE is currently trading above its 50-day and 200-day moving averages, indicating a golden cross uptrend. As such, both technical analysts and fundamental analysts expect the stock to take off soon, making it a potential market mover in the 5G industry as well a potential recession-proof stock for Canadians.
Rogers Communications, Inc. (TSX: RCI)
Rogers Communications Inc. is a leading contender in the 5G race, providing neck-to-neck competition to BCE. It has been labelled the ‘best in test’ operator in Canada by umlaut. The company’s superior mobile network testing and benchmarking abilities have allowed it to earn this label for two years in a row.
The company is known for its attractive dividend yields, making it a popular choice among dividend investors craving a solid cash flow investment amid historically low benchmark interest rates. However, the company has been taking active steps to solidify its foothold in the next generation tech connectivity space, driven by strategic partnerships and extensive government support.
RCI’s ties with Ericsson were established in December last year, following which the former has started deploying the 5G standalone core network across the country. As of December 26, 2020, RCI has expanded its 5G connectivity solutions across the 160 communities in the country. Moreover, the company partnered with Qualcomm Technologies, Inc. to develop the next generation 5G smartphones.
The company’s top line of $10.9 billion over the past year indicates a slight decline year-over-year. The lower sales volume can be attributed to the pandemic-induced supply chain disruptions. Moreover, the company’s extensive stake and capital investments in the stock offset its recurring revenues. However, the company’s EBITDA has increased marginally at a CAGR of 0.8% over the past three years, while its levered free cash flow has increased at a CAGR of 181.8% over this period.
RCI has maintained its profitability rates over the past year, despite the slump in its revenues. It has a trailing 12-month of gross profit margin of 42.1%, while trailing 12-month EBITDA and net income margins stand at 40.4%, and 11.4% over this period. RCI’s shares have a trailing 12-month return on equity of 16.8%.
The company is expected to maintain this trajectory throughout 2021, as it continues to expand its 5G portfolio through hefty investments. While the next generation technology is unlikely to gain traction before the second half of the year, its long-term return on investment is surmounting.
Sierra Wireless, Inc. (TSX: SW)
SW is a domestic wireless communications equipment manufacturer with a global market presence. With the rising demand of necessary equipment across the world, SW is at the forefront of the 5G race. The company has an assortment of products and software services catering to commercialization of 5G, namely router modules and IoT services.
With the chip manufacturing industry currently driving the 5G deployment, SW’s shares nearly doubled in value over the past year, as well as registered 7.3% gains year-to-date. Along with broader market enthusiasm, the stock’s fundamentals played a pivotal role in fueling its growth momentum. SW generated $448.6 million in revenues over the past year, resulting in trailing 12-month gross profit of $158.8 million.
While the company’s annual net income is negative, its strong cash flows and liquidity position makes a strong case for the stock. The company’s levered free cash flow has risen at a CAGR of 862% over the past three years. SW’s capital management is impressive as its trailing 12-month total cash balance is 9.4 times its total debt.
Based on the rate of adoption of 5G technology across the country, these three companies are expected to lead the next generation technology revolution, given their extensive market reach and fundamental strength. Currently limited by severe macroeconomic headwinds, these companies are expected to rally as the COVID threat subsides.