Rogers Communications named a top pick by this fund manager

John Zechner, Chairman and Founder of J. Zechner Associates, said on BNN Bloomberg’s Market Call on July 24 that he continues to like the telecom sector, noting it has “underperformed dramatically for the past couple of years.”

In particular, the fund manager likes Rogers Communications (Rogers Communications Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B) naming it a Top Pick.

“Immigration changes in Canada have slowed growth, and as we said before, the only way you get growth in telecom is through new users, because who doesn’t have a cell phone at this point?” he said.

Zechner said the entry of Quebecor through Freedom Mobile added pressure to the telecom sector, but those pressures now appear to be easing somewhat. He also noted that Rogers’ acquisition of Shaw brought on significant debt, which has been a challenge.

“People have punished the stock along the way,” he said. “The valuation is as low as we’ve seen it, probably about six and a half times enterprise value to operating cash flow. We’re seeing the bottom in terms of cash flow and growth. It’s starting to improve again. Free cash flow is increasing, and they’re going to pay down the debt and start monetizing assets as well.

“They’ve done a deal with private equity for some of the back-end communications equipment, satellite towers, things like that. They can monetize that. The sports franchises are the biggest thing, I think, that has been underappreciated, or maybe less underappreciated now. People are starting to talk about it more.”

Zechner said Rogers’ ownership of MLSE and the Blue Jays gives it significant value, noting that when compared to major sports franchises globally, they rank near the top 10.

“Look at the value of some of these assets, the most recent example being the L.A. Lakers at $10 billion,” he said. “With MLSE, the Leafs, the Blue Jays, a national franchise performing extremely well, the Rogers Centre, and more, there’s a lot of value. At the same time, they’re generating free cash flow, trading at a low valuation, and offering solid dividend yields. You may not be buying at the absolute bottom, but it’s after a long stretch of underperformance.”

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