BCE's Q4 Earnings Beat Belies Persistent Structural Challenges Amid Share Decline

What happened

BCE reported Q4 2025 earnings that beat estimates but saw EPS and revenue fall year-over-year due to sliding product sales, reflecting ongoing earnings compression highlighted in the DeepValue report. This decline is driven by regulatory headwinds like CRTC-mandated wholesale fibre access and media sector erosion, which have forced a 50% dividend cut and elevated leverage to net debt/EBITDA of ~4.75x. Management pointed to service growth and Ziply Fiber gains as long-term cash flow positives, but these are overshadowed by integration risks and structural pressures on broadband margins. The market reacted with shares tanking, signaling investor skepticism about BCE's transition from a bond-proxy to a policy-sensitive turnaround. Despite trading at a ~39% discount to FCF-based DCF valuation, the earnings report underscores that BCE's recovery hinges on navigating regulatory uncertainty and demonstrating sustainable free cash flow.

Implication

The Q4 earnings beat offers no respite from core risks, as BCE's high leverage and regulatory exposure necessitate close monitoring of free cash flow generation post-dividend cut. Investors must prioritize evidence of successful Ziply Fiber integration and cost savings from job cuts to gauge execution capability amid media decline. Regulatory developments, especially CRTC decisions on fibre wholesale pricing, will be pivotal in determining whether the current ~39% valuation discount translates to upside or further downside. The rebased dividend remains fragile, and any additional cuts could indicate structural impairment, potentially shifting the investment stance to sell. For patient value investors, the discount provides potential opportunity, but only if BCE can consistently navigate headwinds and de-lever over the coming quarters.

Thesis delta

The Q4 results reinforce the DeepValue report's cautious stance, confirming that BCE's earnings weakness and market sell-off are driven by persistent regulatory and structural pressures. While service growth and Ziply gains offer incremental positives, they do not materially alter the thesis; instead, they underscore the need for vigilance on cash flow sustainability and regulatory outcomes over the next 6-18 months. No fundamental shift is warranted, but the data tightens the case for a 'wait-and-see' approach until clearer signs of turnaround emerge.