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.

Key Updates:

• Expanding its fibre-powered network: Recently, the company expanded its fibre network across Humber Village, Little Rapids and Bell Island, Newfoundland and Labrador. This includes a total area of ~163 kilometers and would cater to almost 1,780 consumers. In addition to this, RCI.B also installed a new wireless tower while the existing tower will be upgraded on Bell Island to provide reliable wireless connectivity throughout the island. This is expected to boost the network speed which would gradually increase the ticket size of per consumer.

• 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

• Impressive dividend yield: The company has a solid history of stable dividend distribution, backed by healthy cash flows. Notably, the company reported an annualized dividend yield of ~3.179% on an annualized basis, which looks impressive considering the current interest rate scenario.

Risks: The company’s 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.

Q2FY21 Income Statement Highlights:

• Rogers Communication declared its second quarter result, wherein revenue stood at CAD 3,666 million, as compared to CAD 3,665 million in the previous corresponding period (pcp). The company reported a higher revenue from its cable segment (CAD 1,016 million v/s CAD 988 million in pcp), while reported a slide in income from the wireless segment (CAD 2,215 million v/s CAD 2,228 million in pcp).

• The company reported an increase in the operating cost (CAD 2,066 million v/s CAD 2,027 million in pcp) due to the surge in employee expense (CAD 583 million v/s CAD 449 million in pcp), partially offset by lower cost of equipment sales. On the other hand, finance cost stood lower at CAD 207 million v/s CAD 219 million in pcp.

• Net income stood higher at CAD 490 million, grew from CAD 512 million in the previous corresponding period (pcp).

  Q3FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): EV to Sales based methodology

 Analysis by Kalkine Group

Stock Recommendation:

During Q3FY21, the company has adopted new initiatives like automated notifications and an increase in auto pay adoption, which has resulted to ~23% drop in payment related calls. Within the wireless segment, Blended Wireless blended average billings per user (ABPU) on monthly basis stood higher at CAD 64.68 in Q3FY21, improved from CAD 63.55 in pcp. We have valued the stock using 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 industry (Telecommunications Services) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of RCI.B at the closing price of CAD 62.92 on January 18, 2022.

One-Year Technical Price Chart (as on January 18, 2022). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.