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Buy Rogers Communications over BCE and Telus, this fund manager says

Rogers Communications

Choosing between defensive plays in the telecom space?

While there may seem to be little separating Canada’s Big Three, BCE (BCE Stock Quote, Chart TSX:BCE), Rogers Communications (Rogers Communications Stock Quote, Chart TSX:RCI.B) and Telus (Telus Stock Quote, Chart TSX:T), the macro picture might favour Rogers, says Brian Madden of Goodreid Investment Counsel, who says that the ongoing migration to cellphones will hurt companies with a deeper focus on broadband services.

“In Canada, it’s sort of a tri-opoly,” said Madden, senior vice president and portfolio manager at Goodreid, to BNN Bloomberg on Wednesday. “There used to be more players but it has consolidated down to just Rogers, Telus and BCE. To a lesser extent, some would view Shaw also as a player in this space, although it’s not a pure play on telecom. Is it a good space to invest? Yes, because it’s an oligopoly and most oligopolies have high returns on capital and high returns on equity, and telecom certainly fits that bill.”

All three telcos have now reported their first quarter 2019 financials, with Telus’ Q1 arriving on Thursday. Both Telus and BCE had quarters which more or less matched their respective consensus forecasts, whereas Rogers came up short on both its top and bottom lines.

Telus showed revenue of $3.51 billion, up from $3.38 billion a year ago, and adjusted earnings of $0.75 per share, up from $0.73 per share last year, and both were on point with analysts’ expectations of $3.51 billion and $0.75 per share.

Last week, BCE’s first quarter posted revenues up by 2.6 per cent to $5.73 billion with adjusted earnings of $0.77 per share, whereas analysts had expected $5.71 billion and $0.78 per share.

Finally, Rogers reported last month, coming in with a top line of $3.59 billion, which was down from $3.63 billion a year ago, and adjusted earnings of $0.78 per share. Analysts were predicting $3.72 billion and $0.94 per share.

So far in 2019, BCE’s share price is up ten per cent, Telus is up almost eight per cent and Rogers is down two per cent.

Even so, Madden sees Rogers as the better choice, considering the broader shift from wireline to wireless.

“The headwinds from the purely telecom side would be slowing growth relative to what we saw five or ten years ago. That’s particularly true in the wireline business, which is in secular decline as people move to cellphones,” he says.

“The companies that have the greatest exposure to the wireline space would be BCE followed by Telus and least of all Rogers,” he says. “Although we don’t own any of them, if we were going to get more defensive and growth-y and pro-cyclical, Rogers would probably be the one we’d first look at.”

“Just on pure quality of investment alone and ignoring differentials in valuation, Rogers is the best of the three in our assessment,” he says.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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