Internet Stocks
| Ma Bell Rules! |
Dateline: 4/9/99
Tell me, O Octopus, I begs
Is those things arms, or is they legs?
Ogden Nash could have been writing about Bell Canada Enterprises with his little tribute to the eight armed denizen of the deep for surely no other company in Canada has the reach and clout of Old Ma Bell. There are over eight appendages to the beast ranging from Bell Canada to BCE Emergis, its electronic commerce division; to Nortel Networks (Northern Telecom), the dynamic rival to American giants like Lucent and Cisco; to information technology specialist CGI Group (also a leading supplier of Y2K solutions). The diversity of the company can be seen in a flowchart of its subsidiaries and interests at the BCE website.
BCE is, in fact, Canada's first or second largest company by revenue every year (alternating with General Motors of Canada) with sales over $30 billion. It employs 58,000 and has over $40 billion in assets. It was number one in The Financial Post's Top 500 companies for 1996, narrowly beating out GM which was top dog in 1995. It fell behind GM again in 1997. The FP 500 for 1998 will be published in May.
But is this communications giant an Internet company? What is an Internet company anyway? Steve Harmon of Internet.com, the creator of the Internet Stock Index or ISDEX™ only considers companies deriving at least 51% of their revenue from the Internet to be Internet companies. While this intuitively seems like a good idea, it leaves one of the largest players on the Internet scene off the Index completely. And that is Microsoft.
With fewer Net stocks to pick from in Canada in the first place, I'm monitoring all stocks that play a major role in the Internet in Canada, even if the bulk of their business is something else such as telephones. BCE is not a pure play, but it has so many interests in the Internet that we should consider it as a major player. And over time, the growth in e-commerce may well make the Internet the bulk revenue earner for companies that are now primarily telcos or publishers or cable TV providers.
What stake does BCE have in the Internet? Through its BCE Media subsidiary it is a partner in the MediaLinx Interactive Limited Partnership which owns and operates Sympatico, Canada's largest Internet Service Provider and a major online portal.
It owns over 41% of Nortel Networks, a major manufacturer of networking equipment and infrastructure. Nortel in turn owns Bay Networks, another such supplier. Between them, Bay Networks and Nortel are the main competition to Cisco Systems throughout the world.
It owns 68% of BCE Emergis™, a major developer of e-commerce solutions for business. It helps businesses develop and implement e-business, e-payment, security and connectivity solutions. One of the top five e-commerce providers in the world, Emergis is part of the TSE 300. It is a pure Internet play.
BCE's recent strategic partnership with Ameritech gives the American company a 20% stake in Bell Canada. BCE will retain the other 80%. Some restructuring will put some of the companies owned by BCE under the Bell Canada umbrella. Ameritech is one of the world's 100 largest companies
BCE will use the $5.1 billion proceeds from the Ameritech deal "to invest primarily in BCE companies involved in high-growth sectors such as electronic commerce, satellite services, systems integration and content," in other words, the Internet.
Although BCE owns 100% of some of its subsidiaries, others are only partially held and are publicly traded. Many are traded internationally on other exchanges as well. The table below shows how BCE and all its publicly traded subsidiaries and interests have fared since January 1st.
| Company | Symbol | Price (1/1/99) | Price (4/8/99) | % Gain |
| BCE Inc. | BCE | $57.85 | $76.70 | + 32.6% |
| BCE Emergis | IFM | $13.85 | $38.75 | + 179.8% |
| BCE Mobile Communications | BCX | $41.50 | $44.00 | + 6.0% |
| Bell Canada International | BI | $17.20 | $20.50 | + 19.2% |
| Bruncor Inc. | BRR | $23.50 | $24.50 | + 4.2% |
| CGI Group | GIB.A | $30.25 | $31.00 | + 2.5% |
| Island Telecom | IT | $21.10 | $27.00 | + 28.0% |
| Maritime Telegraph & Telephone | MTT | $35.25 | $40.00 | + 13.5% |
| NewTel Enterprises | NEL | $36.80 | $37.50 | + 1.9% |
| Nortel Networks | NTL | $76.60 | $113.50 | + 48.2% |
Clearly the big growth areas for BCE are BCE Emergis and Nortel Networks. The company's interest in Sympatico may be showing results, but since its interest is through Bell Canada, which is not publicly traded, it is hard to say. Prediction: look for Sympatico to be spun off as a separate publicly traded IPO within the next two years.
BCE is a superb investment in its own right and has been recommended for some time by Pat McKeough of The Successful Investor newsletter.
Disclosure: Last Wednesday I did an article on Bid.com - closing trading at $12.40 that day. Yesterday it closed at $30.70. I already owned some shares and did not bother buying any more. Last Thursday I did an article on Uniglobe which closed at $6.45 that day and at $9.30 yesterday. Again I did not buy any. Last Friday I profiled TD Bank and Versus Technologies. They traded at $70.25 and $11.50 respectively. I even mentioned that Versus was still at IPO price, a veritable steal. But did I buy any? - Noooo! They closed at $80.00 and $25.75 respectively yesterday!
Well I couldn't take it anymore. I wrote about BCE and its subsidiaries today because a reader sent an email suggesting I include BCE Emergis in my Canadian Internet Stock Average. I checked it out. It had grown substantially since January 1, but had not been caught up in the Internet frenzy of this past week, so I bought some yesterday. Emergis and two other stocks will be added to the Average after the markets close today.
Bulletin Board:
Got a favorite Internet stock? Why not tell us about it on the Investing (Canada) Bulletin Board!
New Features:
I'll be beefing up the Canadian Internet Stock Average with three new additions this weekend, bringing the total to fifteen.
I've added a new Net Link category called RESPs which features links to sites that have audio and/or video on investing.
I get lots of email from readers, much of it asking for advice or information on something. I've reprinted some of the letters in my new feature - Mailbag - along with my replies.
I'll be adding new Net Link categories on Canadian Internet Stocks and Entrepreneurship soon.
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