Canadian Telecom Rogers Goes Into Tailspin as Price War Heats Up

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(Bloomberg) — Rogers Communications Inc. has gone from the top performer among Canada’s three big telecommunications companies to the sector’s biggest drag, as a wireless price war threatens its premium valuation.

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Canada’s telecom companies are in the midst of an aggressive race to lure customers by lowering prices, a move that threatens to squeeze profits and has unnerved investors.

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Rogers, the country’s biggest wireless carrier, discloses first quarter results early Wednesday at a moment of extreme negative sentiment about the industry’s growth. The S&P/TSX Composite Communication Services index is down 10% since the beginning of March. Analysts, after watching companies ramp up consumer discounts and promotions, expect Rogers to report earnings of C$1.01 per share on an adjusted basis, up just 2% from the same period last year, according to a Bloomberg survey.

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Rogers shares were set up to fall as the company’s outlook softened, partly because it had outperformed its competitors by so much. The shares had surged 35% in the 12-month period ended Feb. 28, right before the stock price hit a two-year peak.

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Toronto-based JCIC Asset Management Inc. sold its entire Rogers position in March, souring on the stock because earning estimates for the company were falling, said Kai Lam, its chief investment officer.

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“I didn’t think the outlook at this point would improve either. Slower population growth in Canada is also a headwind now,” Lam said. The Canadian government has dramatically pulled back on certain categories of immigration, including foreign students.

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JCIC sold its Rogers stake at C$55.06 on March 9, said Lam, some 17% higher than Monday’s closing price. “Pretty lucky given how poorly Rogers has done since then,” he said.

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As investors cut exposure to the sector, Rogers is taking the brunt, said TD Cowen analyst Vince Valentini. Institutional investors “would simply look at their portfolio and say, ‘Well, we actually don’t own any Telus anymore and we don’t own much BCE, so I guess the one we have to sell is Rogers,’” he said in a phone interview.

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Rogers has some unique assets compared with its two major rivals — particularly in media and sports. It now controls Toronto’s major league baseball, hockey and basketball teams, as well as the city’s two major downtown stadiums   and one of Canada’s two major sports cable television networks (BCE has the other).

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Rogers enjoyed a revenue bump last year as the Toronto Blue Jays almost won the World Series, but such gains from on-field success are difficult to control, Valentini said.

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Rogers’ rivals are also struggling. Telus shares have tumbled roughly 10% since the end of February. Investors and analysts are worried about its debt and the sustainability of its dividend. BCE’s stock is down more than 8%. Last year, the company took the hard decision to cut its quarterly payout by more than half. 

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“I’m a little surprised how quickly and how aggressively the stocks sold off,” John Zechner, president of Toronto-based asset manager J. Zechner Associates Inc., said in a phone interview. Rogers’ exposure to the sports business is a point of differentiation, but “that probably, compared to Telus and BCE, is going to give you a little bit more volatility because that’s a wider factor.”

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Rogers makes up roughly 1.6% of his firm’s portfolio, down from just over 2% in October. 

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