Rogers Communications Inc.

RCI.B Collaborates with Roambee to Provide Real-Time Asset Monitoring: Rogers Communications Inc. (TSX: RCI.B) is the largest wireless service provider in Canada, with more than 10 million subscribers equating to one third of the total Canadian market. As on 31 August 2020, the market capitalization of the company stood at ~CAD 21.36 billion. Rogers for Business and Roambee announced a strategic collaboration to provide Canadian businesses with real-time monitoring for shipments and assets indoors, outdoors, and on the go. This collaboration enables businesses to benefit from Internet of Things technologies, resulting in a smarter, more agile supply chain and connected operations.

Recently, Rogers Communications Inc confirmed its agreement with Altice USA, Inc. to purchase all of the Canadian assets of Cogeco Inc. and Cogeco Communications Inc. for a net purchase price of approximately $4.9 billion. The transaction is conditional upon completion of the Altice USA offer on the terms publicly announced.

Quarterly Performance (For the Period Ended 30 June 2020): During the second quarter ended 30 June 2020, the company was awarded with the best wireless network in Canada for the second year. During the quarter, it reported a strong balance sheet with a liquidity position of CAD 5.4 billion and free cash flow of CAD 468 million. The company has decreased its capital intensity by 1.9% via management of capital expenditure. During the quarter, revenue of the company went down by 17% to CAD 3,155 million due to a decline in wireless service and equipment revenue and a significant decline in media revenue. In the same time span, consolidated adjusted EBITDA decreased by 21% and EBITDA margin was down by 230 basis points.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the risks related to the outbreak of COVID-19 and related pandemic, the risk of material reduction in demand for products and services, higher costs for new capital, disturbed client relationships, decline in subscriber counts etc.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is focused on maintaining solid financial position, advancing strategic priorities and investments, and delivering value to shareholders. The company is focused on long-term strategic growth and is prioritizing to drive the competitive benefits and efficiencies from the customer-first and digital initiatives. The company will pay its final dividend of CAD 0.05 on 1 October 2020 with an ex-date of 8 September 2020. As per TSX, the stock of RCI.B is inclined towards its 52-weeks’ low level of CAD 46.82, proffering a decent opportunity for the investors to enter the market. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target price, offering an upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, decent financial position, and ample liquidity, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 56.9 on 2 September 2020.

RCI.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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