Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Rogers’ RCI.B flat service revenue across its wireless and wireline businesses compared with last year highlighted Canada’s challenging environment, but the firm still increased adjusted EBITDA by 2% on expanding margins in both wireless and wireline.
Why it matters: Between slowing immigration and Quebecor’s push to become a national wireless player, Rogers and its competitors face a challenging environment for adding subscribers and increasing prices.
Average revenue per user declined 2% yearly for its wireless and wireline businesses, evidence of the challenging market.Rogers added only 11,000 net postpaid wireless customers, well below the nearly 100,000 level the firm achieved in the first quarters of 2023 and 2024. Internet customer additions held up much better, with 23,000 net additions versus 26,000 last year.
The bottom line: We maintained our C$66 fair value estimate and narrow moat rating for Rogers stock.
We maintain our outlook for increased competitive intensity and a slower market given Canada’s immigration curb. However, as indicated by our narrow-moat rating, we believe it will be incredibly challenging for competitors like Quebecor to steal business from the firm over the long term.Shares look cheap to us. We think the market is overextrapolating today’s competitive environment, and we think Rogers can continue to drive industry-leading wireless customer additions, healthy internet customer additions, and margin improvement over time.
Between the lines: Rogers’ balance sheet looked a bit stretched, given its net debt leverage ratio of 4.3 times and its upcoming C$4.7 billion payment for the additional 37.5% stake in Maple Leaf Sports & Entertainment from BCE. However, its new equity deal with Blackstone should significantly improve its financial position.
The C$7 billion deal will be used to repay debt and enhance Rogers’ balance sheet. We now model the firm returning to a net debt leverage ratio of 3 times by 2027.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
