Value Line has initiated coverage of Rogers Communications (RCIB.TO) in its flagship product, The Value Line Investment Survey. Rogers, a Canadian company, operates through three divisions: Wireless, Cable and Business Solutions, and Media. The company is the largest wireless voice and data telecommunications company in Canada and a leading provider of Internet, cable, telephony, business telecom and networking services, television broadcasting, shopping, sports entertainment, magazines, and digital media. Rogers has 28,000 employees and is headquartered in Toronto.
The company was founded by Ted Rogers in 1960 when he acquired a radio station. Rogers entered a new line of business when it started a cable company in Ontario in 1967. Rogers Communications went public in 1979. It entered the long-distance telephony market in 1992. Rogers created a Media division through an acquisition in 1994. The company launched its wireless network in 2001. Rogers bought five television stations in 2007. Since then, the company has been providing services for devices such as the iPhone as they are introduced. Rogers has two classes of stock on the Toronto Stock Exchange (TSX): Class A, with voting rights, and Class B, without voting rights. Its stock also trades on the New York Stock Exchange under the ticker symbol RCI.
The Wireless division is Rogers’ largest unit. As of year-end 2013, its wireless network reached 73% of Canada’s population, with about 9.5 million subscribers and a 34% market share. Rogers has significant spectrum capacity, either through licenses or network sharing agreements, and is seeking regulatory approval to buy additional spectrum. Within its Cable and Business Solutions segment, Rogers had 2.1 million television subscribers, 2.0 million high-speed Internet subscribers, 1.2 million telephony subscribers, and a fiber network that serves Ontario, New Brunswick, and Newfoundland. The Media division has more than 50 radio stations and several television networks, publishes consumer and trade magazines, is involved with digital media (content and advertising), and owns the Toronto Blue Jays baseball team and its stadium, the Rogers Centre, which were acquired in 2000 and 2004, respectively.
In 2013, Rogers’ revenues were $12.7 billion and its adjusted operating profit was $5.0 billion. (All figures are in Canadian dollars.) Among its business segments, Wireless accounted for 57% of revenues and 61% of adjusted operating profit; Cable and Business Solutions provided 30% of revenues and 35% of adjusted operating profit; and Media generated 13% of revenues and 4% of adjusted operating profit. Overall, adjusted earnings were about flat with the 2012 result. Although 2013 was not an outstanding year, the past 10 years have seen Rogers’ shareholders fare very well. The stock’s 10-year (2004 through 2013) total return of 471% was more than double the TSX Telecom Index’s return of 193%.
Rogers expects just modest growth in adjusted operating profit in 2014. The company’s guidance indicates results ranging from flat to up 3%. Even so, Rogers is able to return cash to shareholders. Earlier in 2014, the board of directors raised the annual dividend 5.2%, to $1.83 a share, which provides an attractive dividend yield of around 4%. Rogers is also authorized to repurchase up to $500 million of its Class B stock. Like many companies that are involved in the wireless or cable industries, Rogers is highly leveraged. As of year-end 2013, long-term debt made up 72% of the company’s total capitalization. Nevertheless, finances are sound, and the company’s securities are rated investment grade by the credit-rating agencies.
Rogers already has numerous competitors, such as Shaw Communications (SJRB.TO). The company also faces the possibility of additional competition from foreign telecommunications companies. Technological changes are another risk factor for Rogers. Most of the company’s businesses are heavily regulated, so regulatory risk is a potential area of concern.
For a more thorough look at Rogers, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have a position in any of the stocks mentioned.