By Edward Golding, CFA, MBA
Portfolio Manager, North American Equities
What a week it has been for Rogers!
Guy Laurence, the company’s President and CEO, suddenly “stepped down” on October 17 and two days later, its baseball team, the Blue Jays lost in the fifth game of the American League Championship Series.
Like millions of Canadians, I’m connected to Rogers on a daily basis. I subscribe to its wireless, internet and cable TV offerings, and the company also owns my favourite baseball team and co-owns my favourite hockey team, the Maple Leafs—not to mention they own the NHL’s TV rights for another 10 years.
My connection with Rogers actually goes way back. Before I joined MD Financial Management, I worked as an equity analyst, covering the cable, media and telecom sectors, where I devoted 12-16 hours a day to analyzing companies like Rogers.
Rogers’ stock is a widely held position in many MD Funds and Pools with the largest weightings within MD PIC segregated equity portfolio (2.85%), MDPIM Dividend Pool (2.52%) and MD Dividend Growth Fund (2.73%) as of October 20 at market close.
Investors who have held Rogers stock over the past five years have been well rewarded. Nearly three of those years were under the leadership of Guy Laurence.
Rogers announced that Joseph Natale, former CEO of Telus would replace Mr. Laurence, though not until July 2017 when Mr. Natale’s non-compete agreement with Telus expires. During the interim, Alan Horn, Chairman of the Board, will step in as CEO.
Mr. Laurence’s dismissal in favour of Mr. Natale does little to change our view on Rogers. We believe the recent upheaval from the CEO transition will have minimal impact on the company in the short run.
Rogers is a large, diversified communications and media company with almost $14 billion in expected sales for 2016. Over the past two years, wireless subscriber numbers have improved and this segment now accounts for 57% of total sales, up from 52% ten years ago.
However, Rogers continues to bleed cable TV subscribers as structural forces (i.e., customers cutting the cord) potentially point towards a declining business. The company also recently shut down Shomi, its video-streaming business, and recorded a $140 million writedown in the process.
While there’s some uncertainty regarding the strategy that Mr. Natale will put into place at Rogers, we are confident in his abilities to steer the ship going forward.
As the former CEO of Telus, Mr. Natale has extensive leadership experience in the communications industry. He was responsible for Telus’ “Customer First” strategy, which led to the lowest churn rate (customer departures) of wireless subscribers in the industry.
Rogers is currently yielding 3.55% and over the past five years (to September 30, 2016), its stock has outperformed the Canadian benchmark (S&P/TSX Composite) by a wide margin (13.62% vs. 6.95%).
We continue to believe it to be a core holding for many of MD Funds and Pools going forward.