TSX Commentary

Bell Aliant (BA.UN): $27.60 – Rating Lowered To Sector Perform
Sector Perform (prev: Outperform), Average Risk, Price Target: $28.00
RBC CM lowered its rating on BA units from Outperform to Sector Perform due to the lower implied return to its $28 target price and the headline risk of a dividend cut at the company’s annual general meeting in May 2010. BA has long mentioned its plan to eventually cut the $2.90 dividend to something closer to $2.20-$2.25. While the dividend cut should not be a surprise, there could be some headline risk, especially if a lower payout ratio is chosen. Post the cut, RBC CM believes BA shares will continue
to trade at a premium due to the potential takeover by BCE in time. RBC CM remains positive on the business outlook for BA given:

(1) no wireless exposure (and risk of new entrants);
(2) BA’s territory is semi-rural which is less at risk of wireless substitution, in our view; and
(3) a relatively stable competitive environment, and our expectation for moderating line losses. BA
units currently have a 10.4% dividend yield now (8% yield fully-taxed post 2011) with 2 further years of tax shelters.
Finally, Once BA converts to a corporation in 2011, RBC CM believes BCE will be interested in finally acquiring and integrating the assets, especially if done with a TELUS merger.