Rogers stock is undervalued, RBC says

Following a major asset purchase, RBC analyst Drew McReynolds has raised his price target on Rogers (Rogers Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B).

On September 18, Rogers announced it had signed a agreement to acquire the 37.5% of Maple Leaf Sports and Entertainment that Bell owned.

“MLSE is one of the most prestigious sports and entertainment organizations in the world, and we’re proud to expand our ownership of these coveted sports teams,” CEO Tony Staffieri said. “As Canada’s leading communications and entertainment company, live sports and entertainment are a critical part of our core business strategy.”

McReynolds said the price Rogers paid was a bit steep.

“While we believe this transaction should not surprise most investors, the $4.7-billion purchase price for the 37.5-per-cent equity stake is slightly higher than our assumed FMV of $3-billion with the timing of such a transaction (at close) 6–12 months earlier than we would have anticipated,” he said. “Management indicated that precedent transactions and the multi-team aspect of MLSE combined with Toronto being one of the most attractive and high-growth sports markets in North America alongside Rogers’ 100-per-cent ownership of the Blue Jays underpinned valuation.”

As reported by the Globe and Mail, McReynolds September 19 maintained his “Outperform” rating on Rogers while increasing his price target on the stock from $65.00 to $66.00.

The analyst sees what he describes as an “asset crystallization” about to take place at Rogers.

“We see room for further NAV upside in a successful crystallization scenario,” he added. “While we await further MLSE disclosures prior to consolidating MLSE as well as details on the funding plan, we have updated our forecast to factor in the NAV impact of the transaction. Our NAV simplistically incorporates a value of $10– 11-billion for Rogers’ combined sports/media assets, intentionally applying a pre-crystallization discount of 25 per cent to estimated FMV (down from 33 per cent previously) to continue to reflect the still embedded nature of these assets within Rogers while acknowledging the incremental visibility around the crystallization path following this transaction.”