We upgrade our recommendation on Rogers Communications Inc. (RCI) to Outperform. The company reported excellent first-quarter 2011 financial results, surpassing the Zacks Consensus Estimates. All the three reporting segments generated growth in the previous quarter. Some of the prominent features of the last quarter are highest ever smartphone sell to the new customers, the second highest number of smartphone activation, and a significant increase in wireless data revenue.
Rogersachieved a strong 49% margin for its wireless segment supported by the healthy demand for high-end mobile phones. Rogers is gradually deploying high-speed HSPA+ wireless network and DOCSIS 3.0 cable network to sustain its future growth.Furthermore, the company has decided to launch 4G LTE networks by end 2011.Rogersselected L.M. Ericsson AB (ERIC) to supply infrastructure equipments for its upcoming LTE networks.
During the first quarter of 2011, Wireless segment activated 534,000 smart-phone devices (up 53.5% year over year) including iPhone 4, BlackBerry devices, and several Android-based phones. Of the total, around 36% were new smartphone subscribers, which is also a historic high figure. Smartphone customers now constituted 45% of overall Postpaid subscribers compared with 33% in the year-ago quarter. Most of the wireless devices that the company sold in the last quarter were the high-end devices.
In order to increase its shareholders’ wealth, the Board of Directors of Rogers Communications has taken two important decisions. Firstly, management raised its annualized dividend rate by 11% to C$1.42 from its existing C$1.28 for every Class A Voting and Class B non-Voting shares, effective immediately. Secondly, the Board of Directors also authorized a share buy-back program of C$1.5 billion within the next 12 months.
Cable operations also contributed to the revenue growth of Cable and Telecom operations, reflecting the growing penetration of digital cable product offerings (75.7% of basic cable households). Despite facing weak seasonality in the previous quarter, every division of the Media segment generated growth. Higher subscribers’ revenue, solid viewership rating of the broadcast channels, and an improving advertising market are the primary reasons for the solid performance.
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