Numerous strengths in Rogers' 2Q outweigh weak revenue

Morningstar analyst Matthew Dolgin has raised his fair value estimate to reflect a more positive long-term forecast

Morningstar Analysts 24 July, 2019 | 10:31AM
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Several positive metrics stood out in narrow-moat Rogers Communications' (RCI.B) second quarter, taking precedence over tepid top-line results that were impacted by less crucial sources. With positive trends in its wireless and internet access customer bases, Rogers is positioning itself to remain an industry leader, something we've questioned after its wireless network fell behind some peers and BCE Inc (BCE) began improving its wireline network. We plan to raise our fair value estimate to reflect a slightly more positive long-term forecast.

Revenue grew less than 1% compared with last year's second quarter. However, the rate was pulled down by wireline phone revenue--which is not key to our long-term forecast--that was weaker than we expected and a 5% decline in wireless equipment revenue, which is volatile. More important measures like wireless service revenue and internet access revenue were up 3% and 7%, respectively. In addition, the adjusted EBITDA margin expanded 330 basis points, a full percentage point better than we expected, and we estimate the accounting rule change to IFRS 16 accounted for only about one third of the expansion. In our view, efficiencies the firm is gaining with its unlimited wireless data plans and Ignite TV offering make the margin expansion sustainable.

The firm added 77,000 postpaid wireless subscribers in the quarter, a nice rebound from a weaker first quarter. Impressively, monthly postpaid churn was under 1% for the second straight quarter and average billings per user grew 4%. More importantly, we think the future is even brighter. In our view, Rogers has continued performing with a network that had fallen behind Telus (T) and BCE. With more 600 MHz spectrum than any competitor and an unlimited data option, Rogers should maintain a first-rate offering.


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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BCE Inc44.57 CAD-0.56Rating
Rogers Communications Inc56.99 CAD-0.02
TELUS Corp21.36 CAD-0.37Rating

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