Rogers Earnings: Performance Remains Good While Integrating Shaw; Profit Guidance Raised

After Rogers Communications RCI acquired Shaw’s cable business and a small subset of its wireless customers on April 3, its recent trend of strong performance seems to have continued unabated in the second quarter. Wireless customer growth was the standout metric yet again, and cable revenue continued to muddle along with a stable subscriber base. By all accounts, the Shaw integration is off to a strong start, with management reaffirming its long-term synergy expectations and slightly raising its 2023 EBITDA and cash flow targets on the back of this. We are maintaining our CAD 75 fair value estimate and think the stock is attractive.

Rogers did not provide pro forma results, and because Shaw was on a different quarterly calendar, exact financial comparisons are unavailable. Management said wireless adjusted EBITDA grew 5%-6% organically year over year while cable EBITDA growth was in the low single digits, both consistent with recent quarters. Consolidated EBITDA margin was 43.4%, Rogers’ best quarterly result in about two years, and should continue rising. Management said the firm realized CAD 48 million in cost synergies in the second quarter. It expects a total of CAD 200 million in 2023 and a run rate of CAD 600 million by the end of 2024′s first quarter, which represents about 5% of annualized second-quarter operating costs.

Rogers added 170,000 postpaid phone customers during the second quarter, nearly 50,000 more than last year’s second quarter and continuing a trend of outpacing our expectations. High levels of immigration continue to provide significant tailwinds, and management didn’t indicate that it expects a slowdown. However, we expect the level of net additions to decline over the next few years, as we expect Freedom Mobile to be a stronger fourth competitor in Quebecor’s hands, and tailwinds that we suspect include an industry shift from prepaid to postpaid as well as increasing mobile penetration should slow.