Ahead of Rogers Communications’ (TSX:RCI.B, NYSE:RCI) second quarter financials to be released on July 19, analyst Aravinda Galappatthige of Canaccord Genuity says he expects to see another strong quarter from the telecom company with a potential beat on its net wireless subscription adds.
Galappatthige’s update on Friday reiterated his “Buy” recommendation and $69.00 price target, representing a 12-month projected return of 9.7 per cent at the time of publication.
Consensus estimates for Rogers’ Q2 include Adj. EBITDA of $1,473 million and Adj. EPS of $1.05, which compare to Galappatthige’s own Adj. EBITDA projection of $1,482 million (a 6.7 per cent year over year increase) and Adj. EPS estimate of $1.12.
The analyst predicts that Rogers’ consolidated revenue will come in at $3,790 million (consensus $3,782 million), up 4.7 per cent and featuring 6.5 per cent growth in wireless.
“Cable sub trends are likely to see some pressure,” says the analyst. “and with Bell launching its new all-fibre broadband products in the GTA and [Rogers’ X1 platform] unlikely to be a factor for Rogers in 2018, we expect these trends to continue.”
“We believe that wireless sustainability would continue to be a topic. With sub growth clearly buoyant, we believe the key factor to consider is Average Revenue Per User upside,” he says.
“Rogers’ differential vs BCE/TELUS of ~$4 in Average Billing Per User potentially positions them to continue to deliver above-industry profitability growth,” he says. “If Rogers does in fact deliver a wireless net adds beat, we believe concerns around [Shaw’s Freedom Mobile’s] impact on Ontario would remain contained. However there still maybe some discussion on managing this threat over the medium term given Rogers’ leading share in Ontario and BC.”
Galappatthige’s target represents a blended multiple of 7.5x his EV/EBITDA 2019 estimate.