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Key Takeaways for Rogers Stock:
- After a major outage and a contested merger, Rogers (RCI.B) appears to be turning a corner with efficiencies realized at Shaw and wireless subscriber growth that’s been defying competitive forces.
- Free cash flow is coming in near the top of the $2.2-2.5 billion range provided, and Rogers is reducing debt leverage more quickly.
- Rogers’ media unit, or at least parts of it, are worth more in a sale than as an operating business with the Toronto Blue Jays generating no operating profit and digital media affecting print, television and radio viewership.
Andrew Willis: We’re surrounded by inflation, but when it comes to cell phone bills, prices have been plummeting. Yet somehow, despite not always offering the lowest prices, Rogers managed to sign up 261,000 new subscribers last quarter, which is about 100,000 more than either of its two competitors.
Rogers Stock is Cheap, Services Aren't But Still Sell
For some reason, Rogers hasn’t been experiencing the same pricing pressure as their peers. Perhaps more customers are buying package deals with wireless but in any case, cash flow is up and costs are down.
Rogers has been making rapid progress in realizing the cost synergies it foresaw after closing the Shaw merger in April, according to equity analyst Matthew Dolgin, who adds that the company could restructure further by selling its media assets, including the Toronto Blue Jays, which are now worth $1.8 billion….If that happens, the team had better stay in Toronto and it’d be nice to see the Skydome again.
For Morningstar, I’m Andrew Willis.
Rogers Bulls Say
- With the Canadian wireless market less penetrated than the U.S. and Europe and the country receptive to immigrants and foreign workers, wireless subscriber growth should remain high. As the industry leader, Rogers is well positioned.
- The company's media unit is worth far more than the market is giving it credit for. If that continues, Rogers can sell some assets to create significant value.
- A gradual return of roaming traffic gives a long runway for heightened wireless average revenue per customer growth.
Rogers Bears Say
- A heavy-handed regulatory environment and competition will prevent Rogers from raising prices substantially, thus damping hopes for material revenue growth.
- With BCE's fiber-to-the-home buildout, its network will finally be a worthy competitor to Rogers', which could allow BCE to poach some customers and reduce Rogers' pricing power.
- Rogers agreed to pay a big premium for Shaw and is counting on significant synergies. The integration risk may be higher than any potential benefit Rogers gets from acquiring Shaw.
