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

• Growth potential within the wireless segment remains high: The wireless segment generates most 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

• Consistent dividend distributor: The company has maintained a stable dividend payout over the years, aided by robust cash flows from successful operations. Recently, the corporation declared a quarterly dividend totaling 50 cents per share, to be paid on July 4, 2022. Furthermore, the stock offered a healthy dividend yield of 2.78% at its final closing price of CAD 71.78 on April 27, 2022, which is realistic given the present macroeconomic and interest rates.

• Strong cash flows: The resilience of the business along agile management and operational efficiency helped the group in generating operating cash flows of USD 813 million in Q1 2022, against CAD 679 million in pcp, while the free cash in the same reported period increased by 31% to CAD 515 million, against CAD 394 million, respectively.

• Enthusiastic guidance for FY 2022: The management shared healthy guidance on multi parameters, where it expects to clock a growth in a range of 6% to 8% for Total service revenue, while an adjusted EBITDA would increase by 8% to 10%. On top of all free cash flow would be in range of CAD 1900 – 2100 million.

• 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 Q1 2022, 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 

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.

Financial overview of Q 1 2022 (In millions of CAD)

Source: Company Filing

• Total revenue increased by 4% to CAD 3,619 million in this quarter, against CAD 3,488 million in pcp. An increase was driven by revenue growth in our Wireless and Media businesses.

• The group witnessed slightly higher finance cost and restricting expenses, still it managed to report higher income before income tax, which stood at CAD 545 million in Q1 2022, against CAD 489 million in pcp.

• Net income for in the reported period was at CAD 392 million compared to CAD 361 million in pcp.

Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group 

Stock recommendation

The company reported solid first-quarter earnings across all of its divisions, owing to improved execution and Canada's economy's sustained strengthening. Furthermore, the management is quite optimistic about the chances ahead, owing to the extraordinary quality of its assets and the focused work of its employees. As a consequence, the company upgraded its outlook for many criteria, including revenue, adjusted EBITDA, and free cash flows, for fiscal year 2022, which is a huge plus.

Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of RCI.B at the last closing price of CAD 71.98 on April 28, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 28, 2022). Analysis by Kalkine Group

This data 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.