Rogers shifts strategy – will it payoff?

Rogers Communications is a diversified communication and media company in Canada. It is the largest wireless and cable TV provider in the country. Rogers Communications has an extensive cable footprint across Canada with 1.6 million television, 2.5 million internet, and 1.1 million phone subscribers.

Its wireless subscriber base is approximately 10.9 million. Rogers is known for delivering the fastest internet speed to its customers. Almost all of Rogers’ businesses are based in Canada and it operates under three strong brands, Rogers, Fido, and Chatr Mobile.

The company has diversified revenue streams consisting of wireless (60% of 2019 revenues), cable (26%), and media (14%). It operates a transcontinental fiber-optic network that extends over 70,000 route kilometers that provides voice and data communications, and data centers, and cloud computing services to the enterprise, public sector, and carrier wholesale markets.

Sportsnet which is the number one sports media brand in Canada is a part of Rogers’ media assets focusing on live sports and local content. Rogers also has an internet-based Ignite TV platform.

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Revenue Growth & Market Exposure

Rogers Communications reaches out to almost 96% of the Canadian population, through its wireless, cable, business services, media, and sports operations. Investments in multi-band LTE wireless network and prime 700 MHz spectrum have started to bear fruits.

Today, Rogers is not only the largest provider of wireless voice and data communications services in Canada but also one of the leading providers of cable TV and high-speed Internet to consumers and businesses with its world-class network and asset mix. It has the largest footprint across Ontario, New Brunswick, Newfoundland, and Labrador crossing the 4.5 million homes mark.

About 87% of Rogers’ total revenues are from services rendered, which makes cash flows highly safe and recurring in nature. The balance of 13% is from equipment sales. The company continues to make investments in the latest generation equipment and coax cable network in order to drive cost, speed, and spectral efficiency.

In Wireless, Rogers grew its Infinite subscriber base to 2.2 million and drove 65% growth in data usage from Infinite users. The Cable business continues to prosper driven by the Internet and the adoption of Ignite TV ending the year with 2.5 million subscribers on Ignite TV. 

Rogers has established key partnerships to research and commercialize Canadian 5G technology and launched its first 5G network in Canada. It has partnered with Ericsson, the leading 5G infrastructure provider in North America. Rogers will also start deploying dynamic spectrum sharing technology, which will allow 4G spectrum to be used for 5G.

The company has expanded its 5G network to 130 cities and towns across the country. Rogers has an extensive portfolio of low, medium, and high band spectrum and is known for offering a high-quality coast-to-coast-to-coast wireless facilities-based network.

The company’s media business should benefit as live sports, which was suspended in March has resumed. Sportsnet continues to be the most-watched network in Canada. Rogers’ service revenue was adversely affected as a result of lower roaming and overage revenue while its equipment revenue started to improve on the back of higher-value device sales and upgrades by existing customers.

As a leading technology and media company, Rogers continues to enhance its wireless and wireline networks, and media operations, supported by increasing demand for communications and internet usage in the current time.

Dividends

Rogers Communications has been paying dividends since the last decade and has a reasonable payout ratio of ~60%. The company has a dividend yield of 4.3% and last raised its dividend by over 4% in 2019. Though its dividend yield is lower than most of its peers, a reasonable payout ratio indicates enough room for future dividend increases.

The telecom has compounded its dividend growth at 5.6% annually, over the last decade. Its earnings have grown at an impressive 35% CAGR over the last three years. The company returned $1.7 billion in cash to shareholders through dividends and share buybacks, which increased by almost 70%, in 2019. Total shareholder returns stood at 36% over the past three years.

Rogers has doubled its market value in the last decade. Instead of raising the dividend, the company has strategically deployed its funds towards capital investment and debt reduction and resumed its dividend growth in 2019.

The company will prioritize growing its core businesses while returning significant capital to shareholders over the long term. Rogers has invested over $30 billion in wireless networks over the past 35 years. It continues to invest in the expansion of its 5G network and Connected Home roadmap.

Strong wireless and residential wireline operations and market-leading media assets generate strong and reliable cash flow for Rogers Communications that maintains both capital investment and shareholder returns.

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Competition

Though the telecommunications industry is highly capital-intensive in nature, it is very competitive in Canada. RCI.B faces competition from the likes of BCE and Telus. Bell Canada Enterprises is Canada’s largest telecommunications company serving more than 22 million customers across the country, while Telus is the second largest telecom company in Canada.

Other competitors include Shaw Communications and Cogeco Inc. Rogers also competes with other Canadian multi-channel broadcast distribution undertakings and residential high-speed Internet service providers. Rogers’ multi-decade of investment strategy has resulted in the fastest internet speeds across its entire cable footprint. Its sports and media assets offer a good diversification flavor to its communications portfolio.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:BCEBCEBCECommunication ServicesTelecommunication Services0.5262.2756.3322.8922.893.010.05625.621.345043.500.106957Tollbooth - RegulatedNOYESYESNOCanada1
TSE:TTTelusCommunication ServicesTelecommunication Services0.6427.7135.4229.4829.481.030.04564.561.305041.270.110777Tollbooth - RegulatedNOYESYESNOCanada1
TSE:RCI.BRCI.BRogersCommunication ServicesTelecommunication Services0.4263.6832.2619.8419.843.600.03143.140.622042.000.039614Tollbooth - RegulatedNONONONOCanada1
TSE:SJR.BSJR.BShaw CommunicationsCommunication ServicesTelecommunication Services0.3936.4418.2020.4720.471.780.03253.250.6710121.190.033924Tollbooth - RegulatedNONONONOCanada1
TSE:QBR.BQBR.BQuebecor Inc.Communication ServicesTelecommunication Services0.6032.647.9813.8413.842.440.03373.370.385041.100.261754Tollbooth - RegulatedNONOYESNOCanada1
TSE:CCACCACogeco Cable IncCommunication ServicesTelecommunication Services0.71118.135.5814.3314.338.250.02172.170.300042.560.126677Tollbooth - RegulatedYESYESYESNOCanada1
TSE:CGOCGOCogecoCommunication ServicesTelecommunication Services0.7292.991.3410.6610.669.070.02342.340.240042.180.141377Tollbooth - RegulatedYESYESYESNOCanada1

Bottom Line

Rogers is one of the top three largest national wireless carriers in Canada with diversified revenue streams and solid growth profiles. It is better positioned among the leading telcos to tap the large 5G market share.

Given its world-class 5G network and strong asset mix, the company is well placed to tap growth opportunities in Canada. Telecom is a highly capital-intensive sector and will continue to command high capital spending in the future given the rapid rate of technology advancements and innovations.

Rogers is well-positioned to outperform its competitors going forward, given its ability to better allocate resources. The company’s strong market share across all assets positions it well as the economy recovers.

RCI.B PE 2021
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