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 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:

• Consistent Dividend payment: Historically, the company reported a consistent dividend payment, across economic cycles backed by stale cash flows. Notably, dividend distribution stood at CAD 504 million in H1FY21, at par with CAD 505 million in pcp. Moreover, the stock carries a dividend yield of ~3.3%, which looks decent considering the current interest rate scenario.

Five years Dividend Distribution (Source: Company Report)

• Lucrative opportunities: On the basis of wireless penetration in terms of the country’s population, Canada stands far behind when compared to the other developing nations, and hence, the opportunity for expansion remains there in the coming days. We believe the key growth would be driven by elevated data demand, driven by increasing video consumption on account of change in consumer’s preferences and change in industry dynamics due to the pandemic. The current scenario in Canada offers rewarding opportunities for the telecom players, and Roger is highly poised to take advantage of the elevated demand from the industry. Notably, the company offered the first 5G network across Canada and has launched favorable data plans to attract a large customer base.
• Constant Decline in total debt: The company reported a regular decline in total borrowings, which is praiseworthy considering the capital-intensive nature of the business. Notably, interest on borrowing declined to CAD 181 million in Q2FY21, down 8% on y-o-y basis, which supported the overall profitability. Moreover, the company reported the lowest total debt in the last five quarters, which is impressive as well.

Q2FY21 Income Statement Highlights:

• B announced its quarterly result, wherein the company posted revenue of CAD 3,582 million, up from CAD 3,155 million in the previous corresponding period (pcp). The increase was supported by improved revenue from the cable and wireless segment. The quarter witnessed an 84% y-o-y jump from the media segment to CAD 546 million, which further contributed to the topline growth.
• Adjusted EBITDA stood at CAD 1,374 million, reflecting a 6% y-o-y growth. The above was supported by impressive growth from the wireless and cable segments, partially offset by a sluggish performance from the media segment.
• Net income stood at CAD 302 million, grew 8% from the previous corresponding period (pcp).

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: 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 concern for the group.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation: The company commands higher profitability margins over its peers, which is a key positive as it indicates higher operational efficiencies. EBITDA margin and operating margin stood at 38.8% and 17.1%, respectively in Q2FY21, higher than the industry median of 33.9% and 13.4%, respectively. The company reported a net margin of 8.4% in Q2FY21, which was higher than the industry median of 4.8%. We have valued the stock using Price to CF -based relative valuation method and have arrived at a double-digit upside (in percentage terms). Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 60.58 on September 13, 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 Technical Price Chart (as on September 13, 2021). 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.