Rogers Communications Inc. (TSX: RCI.B) is a leading telecom and media company based out of Canada and has a subscriber base of more than ten million. Rogers Communication is the first company to roll out a 5G network in Canada and has one of the most extensive networks and operates through three business segments, namely wireless, media and cable services.

Key highlights

• Sequentially improving operating matrix: The company reported solid first-quarter earnings across all its divisions, owing to improved execution and Canada's economy's sustained strengthening. As a result, it maintained its pace and witnessed spirited performance across its gross margin, EBITDA margin, operating margin, and net margin. We believe the momentum to continue in the foreseeable future, as the Company has big plans to support future growth.     

• Growth potential within the wireless segment remains high: The wireless segment generates most of the group's revenue, even though penetration of the above segment in Canada is still lower than in most developed countries. As a result, the company's chances of expanding soon remain favorable. We expect that increased data demand, driven by increased video usage because of changing consumer tastes, will be the primary growth drivers.

• Strong cash flows: The resilience of the business along agile management and operational efficiency helped the group in generating operating cash flows of CAD 813 million in Q1 2022, against CAD 679 million in pcp, while the free cash in the same reported period increased by 31% to CAD 515 million, against CAD 394 million, respectively.

• Enthusiastic guidance for FY 2022: The management shared healthy guidance on multi parameters, where it expects to clock a growth in a range of 6% to 8% for Total service revenue, while an adjusted EBITDA would increase by 8% to 10%. On top of all free cash flow would be in range of CAD 1900 – 2100 million.

• Industry beating margins: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q1 2022, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group

• Consistent dividend distributor: The company has maintained a stable dividend payout over the years, aided by robust cash flows from successful operations. Recently, the corporation declared a quarterly dividend totaling 50 cents per share, to be paid on July 4, 2022. Furthermore, the stock offered a healthy dividend yield of 3.13% at its last closing price of CAD 63.94 on June 3, 2022, which is strong given the present macroeconomic and interest rates.

Risks associated with investment

The operations are capital intensive in nature, and hence a shift in consumer demand would dampen the company’s ROE and profitability. Moreover, the Media segment is yet to mark its profitability, which remains a key concern for the group.

Financial overview of Q 1 2022 (In millions of CAD)

Source: Company Filing

• Higher Revenues: Total revenue increased by 4% to CAD 3,619 million in Q1 2022, against CAD 3,488 million in pcp. An increase was driven by revenue growth in its Wireless and Media businesses.

• Strong Adjusted EBITDA and margins: The group’s consolidated adjusted EBITDA increased 11% this quarter while an adjusted EBITDA margin increased by 260 basis points primarily due to increases in Wireless and Cable adjusted EBITDA.

• Slight increase in operating expenses: The group witnessed slightly higher finance cost and restricting expenses, still it managed to report higher income before income tax, which stood at CAD 545 million in Q1 2022, against CAD 489 million in pcp.

• Elevated net income: The company’s net income for in the reported period increased to CAD 392 million compared to CAD 361 million in pcp.
  

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which forms around 36.54% of the total shareholding. Rogers Control Trust and Fidelity Investments Canada ULC hold the company's maximum interests at 9.89% and 5.04%, respectively. The company's institutional ownership stood at 63.43% while strategic entities ownership stood at 11.07%. Furthermore, higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group 

Stock recommendation

The company reported solid first-quarter earnings for FY 2022,  across all of its divisions, owing to improved execution and Canada's economy's sustained strengthening. Furthermore, the management is quite optimistic about the chances ahead, owing to the extraordinary quality of its assets and the focused work of its employees. As a consequence, the company upgraded its outlook for many criteria, including revenue, adjusted EBITDA, and free cash flows, for fiscal year 2022, which is a huge plus.

The company maintained its pace and witnessed spirited performance across its gross margin, EBITDA margin, operating margin and net margin. We believe the momentum to continue in the foreseeable future, as the Company has big plans to support future growth. Additionally, the stock offered a healthy dividend yield of 3.13% which is strong given the present macroeconomic and interest rates.

Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of RCI.B at the last closing price of CAD 63.94 on June 3, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 3, 2022). Source: REFINITIV, Analysis by Kalkine Group 

*Recommendation is valid on June 6, 2022, price as well. 

Technical Analysis Summary

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Disclaimer

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