UBS upgrades Canada's BCE, cuts Telus

At least four brokerages drop price targets on Telus stock

UBS upgraded Canada's biggest telecommunications company BCE to "buy" from "neutral" but downgraded Telus to "neutral" and said the No. 2 phone company's dividend growth will fall significantly.

The brokerage said BCE is more attractive relative to Telus as it is expected to generate much higher levels of free cash flows.

"Even if we assume BCE will invest in wireline capex at the same intensity as Telus, BCE's FCF valuation would still be more attractive," analyst Jeffrey Fan said in a note to clients.

However, RBC Capital Markets said it prefers Telus over BCE as Telus has positive EBITDA (earnings before interest, tax, depreciation and amortization) growth while BCE's EBITDA is expected to be down to -4%.

At least four brokerages cut their price targets on Telus stock. Telus on Tuesday lowered its 2008 outlook and gave 2009 forecast below market estimates.

BCE's CAN$34.8 billion buyout plans crumbled last week, setting the stage for a fight between the company and its proposed buyers over the CAN$1.2 billion breakup fee.

Telus has ruled a possible merger with its bigger rival. It had planned to make an offer for BCE in 2007, but walked away before BCE made a deal with a private-equity group.

Shares of BCE and Telus were unchanged at CAN$21.32 and CAN$34.03 respectively on the Toronto Stock Exchange on Wednesday morning.
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