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

• An income play: The company has maintained a stable dividend payout over the years, aided by robust cash flows from successful operations. This quarter, the corporation paid out CAD 253 million in dividends to shareholders, with a payout of CAD 0.50 per share due on January 4, 2022. Furthermore, the stock offered a healthy dividend yield of 3.463% at its final closing price of CAD 57.76 on December 10, 2021, which is realistic given the present macroeconomic and interest rates.
• Growth potential within the wireless segment remains high: The wireless segment generates the majority of the group's revenue, despite the fact that penetration of the above segment in Canada is still lower than in most developed countries. As a result, the company's chances of expanding in the near future remain favorable. We expect that increased data demand, driven by increased video usage as a result of changing consumer tastes, will be the primary growth drivers.

Source: Company Presentation

• Elevated cash flow from operation: As a result of cash provided by net operating assets, the firm generated cash flow from operating operations of CAD 1,319 million in the reported period, up 34%. It also recorded CAD 507 million in free cash flow, which was down 42% due to higher capital expenditures and cash income taxes.

• 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 Q3 2021, 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

• Robust liquidity: The group had CAD 6.4 billion in available liquidity as of September 30, 2021, including CAD 1.6 billion in cash and cash equivalents and a combined CAD 4.9 billion in bank credit facilities and receivables securitization. We feel the company has enough cash on hand to continue operating without interruption.
  

Financial overview of Q3 2021 (In millions of CAD)

Source: Company filing

• Total revenue was stable at CAD 3,666 million in this quarter, as a result of service revenue growth in its Wireless and Cable businesses, offset by lower Media revenue and lower Wireless equipment revenue.
• On the bak of slight increase in operating expenses, its income before income tax dipped to CAD 668 million in Q3 2021, against CAD 701 million in pcp.
• Net income for Q3 2021, stood at CAD 490 million compared to CAD 512 million in pcp.
  

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. 

Valuation Methodology (Illustrative): Price to CF based

Stock recommendation

The company's third-quarter results were solid, thanks to a continued rebound in its wireless sector. Each of its businesses is benefiting from the economy's ongoing openness, and we expect this trend to continue as the year progresses. An expanding digital market combined with increased mobile penetration would certainly increase Canada's reliance on the 5G network, which would eventually support the company's prospective performances. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of RCI.B at the last closing price of CAD 57.76 on December 10, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary:

One-Year Price Chart (as on December 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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