Rogers Communications Inc.

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 its 5G network in Canada and has one of the most extensive networks and operates through three business segments, namely wireless, media and cable services.

• Launch of first commercial 5G standalone network: The company launched its first commercial 5G standalone network in Canada, which is one of the first 5G rollout globally. This is likely to improve the customer’s experiences by increasing coverage, scalability and availability, and improving network response times. This would reaffirm the company’s position as the leading wireless service provider across Canada.

• Bullish Sectoral outlook: The group derives its majority revenue from the wireless segment, while the penetration of the above segment in Canada still remains lower than most of the developed nations. Hence, the opportunity for expansion for the company remains high in the coming days. As per the recent trend, we believe the key growth drivers would be growing internet usage due to increasing video consumption.

Source: Company Presentation

• Collaboration with Microsoft to boost digitization: On March 16, 2022, the company announced a five-year strategic alliance Microsoft to optimize enterprise and small and medium business customers accelerate digitization and take complete advantage of hybrid work and 5G-enabled solutions. This service offers all-in-one communications and collaboration solution which would help organizations to upgrade legacy infrastructure, drastically reduce costs on redundant wireline voice services, and would enhance client’s experiences through compliant team experience.

     FY21 Financial Highlights: (Million of CAD)

FY21 Income Statement Highlights (Source: Company Report)

• B announces its full-year result, wherein the company posted its revenue of CAD 14,655 million, higher than CAD 13,916 million in FY20. The media segment grew 23% on y-o-y basis to CAD 1,975 million, while Wireless and Cable segments reported growth of 3% each, respectively, on y-o-y basis.
• The company reported a significant increase in the operating costs of CAD 8,768 million from CAD 8,059 million in FY20. Meanwhile, depreciation & amortization costs and finance costs stood lower than the previous year, which partially supported the profitability. Income before income tax stood lower at CAD 2,127 million, as compared to CAD 2,172 million in FY20.
• The company reported its net income of CAD 1,558 million, slide from CAD 1,592 million in FY20. This was primarily lower income before income tax, partially offset by a lower income tax expense.

Risks associated with the 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 major concern for the group. 

Valuation Methodology (Illustrative): EV to Sales based methodology.

Analysis By Kaline Group

Stock Recommendation:

In FY21, the company expects its total service revenue to grow by 4% to 6% over FY22, while its adjusted EBITDA is likely to increase by 6% to 8% in FY22. RCI.B expects its capital expenditure in between CAD 2,800 million to 3,000 million. RCI.B’s free cash flows is likely to came in between CAD 1,800 to 2,000 million, which is higher than CAD 1,671 million in FY21. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Shaw Communications Inc, Telus Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of RCI.B at the last closing price of CAD 70.95 on April 04, 2022.

One-Year Technical Price Chart (as on April 04, 2022). Analysis by Kalkine Group

Disclaimer

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