Neutral on Rogers Communications


We reiterate our Neutral recommendation on Rogers Communications Inc. (RCI). The Canadian wireless market has become increasingly competitive exerting huge pressure on the company’s ARPU and churn rate. Rogers Communications reported weak financial results for second-quarter 2012, which fell below the Zacks Consensus Estimates. The cable segment has also started facing the brunt of the aggressive rollout of IPTV by its competitor. Moreover, the media segment is facing continued softness of the advertisement market.

Nevertheless, we believe that the significant expansion of LTE networks and an attractive dividend yield will support the stock price in the near future. Massive demand for mobile data and growing activation of latest smartphones will pave the way for Rogers Communications’ future growth.

Last month, Rogers Communications together with Bell Canada, a division of BCE Inc. (BCE) completed the joint acquisition of 75% stake in Maple Leaf Sports & Entertainment (:MLSE). With this acquisition, Rogers will be able to deliver highly quality sports content to its subscribers anywhere, anytime, on any platform through its wireless/cable networks and robust portfolio of media assets. The sports contents of MLSE are in high demand in Canada.

Rogers Communications has decided to gain complete control over sports television network Score Media Inc. – Canada's third largest specialty sports channel – by purchasing its full stake for $167 million. The transaction awaits shareholder and other customary approvals. The proposed acquisition of Score Media Inc. will provide Rogers the right to access television assets of the Score Television Network, that includes Voice to Visual Inc., mixed martial arts promotion The Score Fighting Series, and The Score Television Network.

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