Company Reports

We believe Rogers Communications is extremely undervalued as the market has overly discounted a challenging Canadian telecom industry, where growth for the Big Three incumbents is likely to slow amid heightened competition and fleeting tailwinds. Yet first-quarter results once again exceeded our expectations across many crucial data points, and management expects business to improve further throughout 2024. We’re maintaining our CAD 78 fair value estimate and see narrow-moat Rogers as one of our best ideas.

Rogers is a premier national telecom provider in Canada that is as well positioned as any peer. It is the largest wireless services provider, based on mobile phone customers served, and after acquiring Shaw in 2023, it has a nationwide fixed-line network that covers two thirds of the country.

The Big Three Canadian telecom firms have all sold off substantially over the past month after members of Parliament summoned the three CEOs to testify before a House of Commons committee. The CEOs were grilled on March 18 and the MPs have not yet taken action. While vilifying telecom firms is popular, and consumers undoubtedly desire lower prices, we don’t expect major regulatory changes. We’re maintaining our fair value estimates of CAD 78 for Rogers, CAD 33 for Telus, and CAD 60 for BCE.

Rogers is a premier national telecom provider in Canada that is as well positioned as any peer. It is the largest wireless services provider, based on mobile phone customers served, and after acquiring Shaw in 2023, it has a nationwide fixed-line network that covers two thirds of the country.

Rogers continues to realize the cost savings from its Shaw acquisition ahead of schedule, executing well toward what we think is the most critical component of that transaction. From a sales standpoint, we haven't yet seen evidence that Shaw's footprint has changed anything, and the fourth quarter had areas of both encouragement and concern. As we project only meager sales growth throughout our forecast, the results don't alter our view. We are maintaining our CAD 78 fair value estimate and believe shares are undervalued.

In a very strong quarter for Canada’s wireless carriers, Rogers clearly stood above all peers, as it far exceeded any competitor’s level of subscriber additions, and it didn’t see the same pricing pressure amid increased competition. The firm is also making rapid progress on the cost synergies it foresaw after closing its Shaw merger in April, leading to the margin expansion we think was critical to make the deal worthwhile. With the quarter's results magnifying our thesis, which also includes a stagnant wireline business, we’re raising our fair value estimate to CAD 78 from CAD 75, leaving the shares materially undervalued.

Rogers Communications has ramped up investment in its wireless network in recent years and completely alleviated our concern that its network had been falling behind peers. Rogers was the biggest spender in 2019’s 600-megahertz spectrum auction and 2021’s 3,500-megahertz spectrum auction, and we don’t think its 4G or 5G networks have any practical differences versus its two big rivals. Since 2022, Rogers has had the strongest wireless business in Canada, and we don’t expect it to lose ground. With Canada’s policy to keep immigration high and allow in other foreign workers and students, Rogers is well positioned to keep expanding its wireless subscriber base. Considering the industry tailwinds, we don’t expect wireless customer growth to be severely dented by increasing competition, but we do think pricing will be hit across the industry by competitive pressure.

After Rogers Communications acquired Shaw’s cable business and a small subset of its wireless customers on April 3, its recent trend of strong performance seems to have continued unabated in the second quarter. Wireless customer growth was the standout metric yet again, and cable revenue continued to muddle along with a stable subscriber base. By all accounts, the Shaw integration is off to a strong start, with management reaffirming its long-term synergy expectations and slightly raising its 2023 EBITDA and cash flow targets on the back of this. We are maintaining our CAD 75 fair value estimate and think the stock is attractive.

Rogers Communications has ramped up investment in its wireless network in recent years and completely alleviated our concern that its network had been falling behind peers. Rogers was the biggest spender in 2019’s 600-megahertz spectrum auction and 2021’s 3,500-megahertz spectrum auction, and we don’t think its 4G or 5G networks have any practical differences versus its two big rivals. Since 2022, Rogers has had the strongest wireless business in Canada, and we don’t expect it to lose ground. With Canada’s policy to keep immigration high and allow in other foreign workers and students, Rogers is well positioned to keep expanding its wireless subscriber base. Considering the industry tailwinds, we don’t expect wireless customer growth to be severely dented by increasing competition, but we do think pricing will be hit across the industry by competitive pressure.

Rogers had a good first quarter, with results looking similar to what we saw throughout 2022. Highlights included continued impressive wireless subscriber growth and strong cable margins. On the other hand, cable subscribers and revenue are stagnant, and wireless average revenue per customer, or ARPU, growth is relying solely on a return of roaming revenue—a phenomenon that should peter out soon. The quarter also did not include Shaw, as that merger closed on April 3. After incorporating the first-quarter results and our estimates for exactly what Rogers will receive from Shaw, we’re raising our fair value estimate to CAD 75 from CAD 73.

Rogers has ramped up investment in its wireless network in recent years and completely alleviated our concern that its network had been falling behind peers. Rogers was the biggest spender in 2019’s 600-megahertz spectrum auction and 2021’s 3500-megahertz spectrum auction, and we don’t think its 4G or 5G networks have any practical differences versus its two big rivals. Since 2022, Rogers has had the strongest wireless business in Canada, and we don’t expect it to lose ground. With Canada’s policy to keep immigration high and allow in other foreign workers and students, Rogers is well positioned to keep growing its wireless subscriber base. Considering the industry tailwinds, we don’t expect wireless customer growth to be severely dented by increasing competition, but we do think pricing will be hit across the industry by competitive pressure.

After two years and numerous twists and turns, Rogers and Shaw finally received the final approval needed to complete their merger, with consent from the industry minister for Innovation, Science, and Economic Development, or ISED. As previously agreed, Quebecor will take over Freedom Mobile, which comprises most of Shaw’s wireless business. The ISED formalized some requirements for Rogers and Quebecor, but most of these were consistent with terms the two companies previously stated were acceptable. Nothing in the approval changed our long-held view that the deal is valuation neutral for Rogers and positive for Quebecor. We already expected the deal to be approved, so we are maintaining our fair value estimates of CAD 73 for Rogers and CAD 35 for Quebecor.

As was the case throughout 2022, Rogers’ wireless business sizzled in the fourth quarter and drove excellent consolidated financial performance. Cable revenue and subscriber additions remained lackluster, but the dynamics in the segment should change significantly if Rogers gets final approval to add Shaw’s wireline business, which we expect to happen shortly. We’re raising our fair value estimate for Rogers to CAD 73 from CAD 70, with our current assumption remaining that the Shaw addition will be value neutral.

Rogers has alleviated the concern we’ve long had that its wireless network is falling behind rivals Telus and BCE and that BCE’s fiber-to-the-home buildout would dent Rogers’ cable dominance. It has invested to improve its wireless network, and it has skirted Shaw’s fate of cable customer losses in the face of its competitor’s network improvement, mitigating market share losses. We believe its proposed acquisition of Shaw will be value-neutral, but the purchase price and integration uncertainty bring greater risk.

Shaw reported a generally poor fiscal first quarter, though it was largely consistent with recent trends. We expect the merger with Rogers—along with the divestiture of Freedom Mobile to Quebecor—to be approved, so we see these results as mostly relevant for Rogers and Quebecor. We’re maintaining our probability-adjusted CAD 38 fair value estimate for Shaw. We believe the reasoning of the Competition Tribunal in saying that the proposed transaction is not anticompetitive was solid and expect the decision to hold up on appeal, paving the way for merger completion. However, Shaw’s upside remains capped at CAD 40.50, and we believe there is significant downside if the Competition Bureau’s appeal of the Tribunal’s decision is successful.

Consistent with what we thought proper, Canada’s Competition Tribunal dismissed the Competition Bureau’s complaint following a trial that sought to block the merger between Rogers and Shaw, which also entails Quebecor acquiring Shaw’s Freedom Mobile wireless unit. However, the decision has been stayed pending the Bureau’s appeal. In appealing, the Bureau appears more interested in pursuing its agenda to block the merger than in looking out for consumers’ best interests. While the process will now be drawn out further, we still expect the deal to close and maintain our probability-adjusted fair value estimate of CAD 38 for Shaw as well as our fair value estimates for Rogers and Quebecor of CAD 70 and CAD 35, respectively.

Shaw reported a second straight quarter of material gains in broadband subscribers, and its wireless results were much better than we feared amid the uncertainty surrounding its Freedom Mobile wireless business. However, the continuing exodus of wireline video and phone customers led to yet another quarter of top-line declines. Year-over-year revenue declined 1.5% in the quarter and over 1% for the full year.

Rogers Communications reported a surprisingly strong third quarter, considering that it was dealing with the fallout of a major network outage in early July. Third-quarter sales and profits were reduced by nonrecurring customer credits that the firm provided in the outage’s wake. However, wireless subscriber additions were superb, indicating the strong third-quarter subscriber results from competitors BCE and Telus resulted from sizable industry growth rather than a share loss for Rogers. Cable subscriber results were weaker than we’d otherwise expect, but we’ve forecast long-term cable market share loss to BCE notwithstanding the network outage. Overall, the third-quarter results reinforce our view that the network outage won’t have a long-term impact on Rogers. We are maintaining our forecast and CAD 70 fair value estimate.

Rogers has alleviated the concern we’ve long had that its wireless network is falling behind rivals Telus and BCE and that BCE’s fiber-to-the-home buildout would dent Rogers’ cable dominance. It has invested to improve its wireless network, and it has skirted Shaw’s fate of cable customer losses in the face of its competitor’s network improvement, mitigating market share losses. We believe its proposed acquisition of Shaw will be value-neutral, but the purchase price and integration uncertainty bring greater risk.

Rogers, Shaw, and Quebecor will take another shot at mediation in hopes of reaching an agreement with the Competition Bureau for approval of Rogers’ acquisition of Shaw, with Shaw’s Freedom Mobile wireless business going to Quebecor. We don’t have high hopes that mediation will result in a resolution, but Shaw and Rogers have both delayed the timing of their typical October earnings reports, which we see as a sign they hold out some hope mediation will be successful. There’s no change to our view that approval is ultimately more likely than not, and we are maintaining our fair value estimates of CAD 38 for Shaw, CAD 70 for Rogers, and CAD 35 for Quebecor.