Founded in 1920, Rogers Communications Inc. (RCI) has grown to become the largest communications and media company in Canada. The firm provides wireless voice and data communications services, telephony, cable TV, Internet access and video retailing. It also has a business solutions division, which offers data networking, voice communications services and broadband Internet connectivity to businesses.
A Leadership Trajectory
Right from the beginning, the company’s founder Ted Rogers built the firm upon aggressive investments and acquisitions, thus giving it a solid structure. Being a visionary, he then positioned it in the telecommunications forefront through continuous innovations and a successful diversification of its businesses.
Although in recent years management has shifted focus towards capital discipline, cost-cutting and shareholder returns, the company still follows its founder’s strategy. Proof of this is its purchase of most of the 700 Mhz spectrum bid in the auction held in February 2014, a valuable acquisition for which it paid more than double the amount the market was expecting.
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- RCI 15-Year Financial Data
- The intrinsic value of RCI
- Peter Lynch Chart of RCI
A Narrow Moat
For a long time, Rogers was the only GSM operator in Canada, which gave it de facto exclusivity to the iPhone and other GSM-based smartphones. This advantage garnered the firm a leading position in the postpaid segment and also an important upside in relation to roaming, given GSM is the most commonly used standard worldwide.
On top of this, its huge wireless spectrum has played a key role in carving Rogers’ narrow economic moat. Along these lines, the company’s recent acquisition boosted the quality of its network, raising its superiority to a higher level. This in turn has empowered the strong customer loyalty the firm has earned over time by having the most reliable network in the country.
The huge amount of traffic on its system is another competitive upside contributing to its economic moat, since it provides the firm with significant cost advantages.
The company is also superior in terms of wireline services, since its coaxial cables deliver a better quality and bandwidth than its peers’ twisted copper network.
Most of Roger’s revenue is generated through its wireless service. Its network quality has allowed the firm a steady growth of its subscriber base, 85% of which is comprised of postpaid customers, whose ARPU is more than four times as high relative to prepaid users.
Further, 45% of wireless revenue comes from data, which has been growing thanks to smartphones, now representing roughly three fourths of the company’s postpaid base. High- end customers are the most likely users of these devices, which carry lower churn rates and generate double the average ARPU in relation to voice-only wireless customers.
Canadian telecommunications are controlled by The Big Three, a well-established oligopoly in which Rogers enjoys a leading position (the other two being Bell -owned by BCE Inc. (NYSE:BCE) and Telus Corp. (NYSE:TU)) The titanic investments necessary to enter as a fourth carrier in a competitive position have made Verizon Communications Inc. (NYSE:VZ)and AT&T Inc. (NYSE:T) desist of such an enterprise.
Rogers’ stock trades at 13.40 its trailing earnings, an attractive multiple compared to its rivals’ average of 17.20. The stock becomes even more compelling when we consider its 11.70% earning per share growth, against an industry average of just 0.20% and its robust return on equity of 35.8% compared to its competitor median of 12.18%. Its dividend yield of 4.4 is also higher than the 3.7 average. No wonder investment gurus David Dreman (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Scott Black (Trades, Portfolio) have added Rogers to its portfolio; without a doubt, its stock represents an outstanding investment opportunity.
Disclosure: Vanina Egea holds no position in any stocks mentioned.