Dialing up a Rogers resurgence

He believes the EBITDA margin pressure implied in Rogers’ guidance is the result of the upcoming X1 cloud-based TV platform launch, which is a partnership with U.S. cable giant Comcast Corp.

“While we believe this trend could continue as the product gets deployed, we believe investors should focus on free cash flow, as we see higher opex being offset by lower capex spending going forward,” Yaghi said.

Rogers was forced to take a $484 million writedown in Q4, as it abandoned plans to build its own IPTV service and opted to make the X1 deal with Comcast.

Yaghi noted that while positive momentum could carry Rogers, he cautioned that valuation should temper the outlook, as the stock is now trading at a premium to both BCE and Telus.

“Leverage and growth continue to be factors that are holding the company back from increasing the dividend,” the analyst said.

“We think those issues should be resolved in 2018.”

Richard Choe at J.P. Morgan also cited the flat dividend and high multiple for his recommendation to stay on the sidelines for now.

The analyst doesn’t think Rogers will raise its dividend until after Natale takes over.

Choe noted that Rogers trades at a relatively expensive 8.2x 2017 estimated EV/ EBITDA and 17.5x P/E multiple. That compares with BCE at 8.2x and 16.1x, respectively, and Telus at 8.0x and 16.2x.

Rogers’ current dividend yield is also the lowest of the three, and not growing at 3.2 per cent, versus 4.7 per cent for BCE and 4.5 per cent for Telus.

“While we see solid growth prospects for the company, the stock trades at a relatively high EV/ EBITDA and P/E multiple and low dividend yield relative to other companies in the space,” Choe said, adding that he doesn’t expect a dividend hike in the near term.