Shares of Rogers Communication (TSX:RCI.B, NYSE:RCI) may be on a continuing nosedive since last November, but there’s little chance the stock won’t recover, says Stan Wong at Scotia Wealth Management, who claims that like the other two in Canada’s Big Three telcos, Rogers is still well-positioned for growth.
Market volatility has been the name of the game since early February, but the downturn came for Canada’s big three telcos a couple of months earlier. Telus (TSX:T) is off eight per cent since hitting a new high on November 27, BCE (TSX:BCE, NYSE:BCE) is down 14 per cent since early December and Rogers has now fallen a full 23 per cent from its November 21 high.
The three companies made news over the Holiday season by offering wireless subscription discounts for new customers, in efforts to stave off up-and-comer, Shaw Communications and its Freedom Mobile division.
But Shaw’s gains (it recently reported a growth of 93,500 new subscriptions over its second quarter ended February 28) aren’t seen as much of a cut into the Big Three, simply because the wireless market itself is so strong. In 2017, for example, Telus, BCE and Rogers collectively gained over 300,000 more subscribers than they did in 2016.
Which is why Rogers is still a good stock to own, says Wong.
“[Rogers] is focused on driving their topline gains and boosting their wireless subscribers, just like every other major telco in Canada,” he says in conversation with BNN. “They’re pushing up their average revenue per user metrics as well. They’ve got a good hold on the cable space and they’re well-positioned to really capture growth in some of the more populated areas like Toronto.”
“I like the dividend that it pays —you’re getting a 3.3 per cent dividend, and it’s trading at about 8.5x EV/EBITDA. That’s down from a high of about 11x last July,” he says.
Wong attests that he’s not concerned with the telco downturn, as it was to be expected following significant interest rate hikes last year.
“With interest rates moving higher, some of the telcos naturally start to come off a bit,” he says. “But because Rogers, Telus and BCE have a natural foothold on the market — they’ve got about 80 per cent of the market share. There’s really not a lot of incentive to fight each other and to lower costs and rates and so forth. So, I think all three of them will keep their margins pretty strong going forward.”
“With BCE, you’re getting a bit of a higher dividend and more cash flow; with Rogers, you’re getting a little bit of growth from the cable side and the wireless side. So, you’re going to see a similar move in all three names, but I think that over time, given the fact that there’s only three players with 80 per cent of the market share, they’ll do fine,” Wong says.
“Clearly, Rogers is doing well, along with Bell, with the Leafs in the playoffs,” he said.