Call On Rogers For Telecom Growth

4/12/2010


  Recent Price
$34
  Dividend
$1.10
  Yield

3.2%

  P/E Ratio
14
  Shares (millions)
603
  Long-Term Debt as % of Capital
66%
  52-Week Price Range
$35.62 - $21.51

Toronto-based media giant Rogers Communications ($34; RCI) has captured 37% of Canada’s wireless market and 30% of the country’s cable-TV share. Translation: Rogers is the Canadian equivalent of Verizon Wireless and Time Warner Cable ($52; TWC) — in one company.

Efforts to control costs and boost efficiency (operating profit margins rose in each of the last four years) have helped Rogers generate positive free cash flow in 14 of the last 16 quarters. Rogers tends to return much of its excess cash to investors. The share count fell 7% in 2009, and the dividend has more than doubled sincce 2007. Rogers, yielding about 3.2%, is a Buy and a Long-Term Buy.

Business breakdown

Rogers, with 8.5 million wireless customers, controls the largest share of Canada’s wireless market. The segment accounted for 58% of Rogers’ operating revenue last year and 68% of its operating profit.

Rogers has captured nearly one-third of the national cable market despite operating in just three provinces: Ontario, New Brunswick, and Newfoundland and Labrador. The company’s subscriber base includes 2.3 million for basic cable, 1.66 million for digital cable, 1.62 million for cable Internet, and 940,000 phone customers. The cable segment generated 29% of Rogers’ 2009 operating revenue and 29% of operating profit.

The media unit (13%, 3%) houses a collection of radio and television stations, consumer magazines, a sports network, and a televised home shopping service. This unit also owns the Toronto Blue Jays baseball team.

Industry outlook

Canada’s cable industry has matured, and the explosive growth that powered wireless expansion in the past decade is moderating. In addition, new uncertainties are testing both markets.

In March, Canadian regulators advanced a proposal to let broadcasters negotiate fees with cable and satellite companies that redistribute programming. This model, already adopted in the U.S., could cost satellite and redistribution companies tens of millions of dollars. Rogers vowed to challenge the proposal in court. But should these expenses materialize, they will likely be passed on to the consumer.

Three titans dominate Canada’s wireless market. Together, Rogers, BCE ($30; BCE), and Telus ($37; TU) control 95% of the market. Trying to stoke new competition, Canadian regulators have licensed four new operators, potentially triggering defections and pressuring rates for Canada’s big three. While the industry issues are worrisome, Rogers’ share price already reflects plenty of uncertainty, and the company seems capable of exceeding modest consensus expectations.

At 14 times trailing earnings, Rogers shares trade well below the three-year median P/E of 19. The consensus projects per-share-profit growth of 3% this year and 8% in 2011, and estimates are rising. Over the next five years, Wall Street expects Rogers’ per-share profits to rise at an annual rate of 11%. An annual report for Rogers Communications Inc. is available at 333 Bloor Street E., 7th Floor, Toronto, ON M4W 1G9; (800)-564-6253; www.rogers.com.

ROGERS COMMUNICATIONS
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Dec '09 $0.61 vs. $0.26 + 4% $32.38 -

$26.12

15 - 12
Sep '09 0.82 vs. 0.70 + 2% 29.29 - 24.20 15 - 12
Jun '09 0.65 vs. 0.56 + 3% 30.56 - 21.51 16 - 11
Mar '09 0.40 vs.

0.42

+ 5% 31.33 - 19.59 16 - 10
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2009 $11.73 $2.48 $1.01 $32.38
-
$19.59 13 - 8
2008 $11.34 $1.94 $0.82 46.40
-
22.61 24 - 12
2007 $10.12 $1.39 $0.41 54.28
-
29.67 39 - 21
2006 $8.84 $1.00 $0.07 31.06
-
18.31 31 - 18
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
99 95 87 98 58 88 61

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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