Rogers Communications Inc.’s new chief executive is the man with the plan – to have a plan.
The company is slipping, Guy Laurence said after his first earnings release, which fell short of analyst expectations across the board. We’ll know what he intends to do about it in the spring.
Until then, the stock is likely to continue to trade at a discount to the other big Canadian telcos. In fact, investors should expect turbulence beyond just the short term, as Mr. Laurence begins the process of reviving the company.
“Guy Laurence has his work cut out for him,” said Dave Heger, an analyst at Edward Jones.
Having just taken over in December from former CEO Nadir Mohamed, Mr. Laurence, a veteran telecom executive from Britain, arrives at his post at the outset of a transition period.
Rogers faces heightened competition from BCE Inc. and Telus Corp., moderating growth in a maturing industry and pressure on profitability from the new federal wireless code, which reduced the maximum length on cellphone contracts to two years from three.
The company evidently succumbed to those strains in the fourth quarter. Adjusted profit fell 20 per cent from the same quarter a year earlier, while net new wireless subscribers amounted to a paltry 34,000, barely more than one-quarter of the new business that BCE’s wireless unit managed to drum up over the same three-month period. Even the 5-per-cent dividend increase was just half of what analysts had hoped for.
Of the results, “they are not satisfactory to me and over time I expect to do better,” Mr. Laurence said in a conference call on Wednesday.
“Our margins, cash flows and return on assets are strong, but we slipped in terms of our growth rates relative to our peers and we need to execute in even a more methodical and disciplined manner as we go forward.”
Mr. Laurence said he is in the middle of a review of operations, the results of which he plans to present to the company’s board in May before disclosing them publicly.
Investors didn’t like what they heard, sending the share price down 5.3 per cent to its lowest level since September. Back then, the stock was still recovering from the rumour of Verizon’s plan to enter the Canadian market.
Wednesday’s slump widened the discount between Rogers’ stock and the other major wireless carriers, and rightfully so, Dvai Ghose, head of research at Canaccord Genuity, wrote in a note to clients. Rogers current price-to-earnings ratio of 13.4 compares to 15.9 times earnings for BCE and 17.7 for Telus.
“While BCE Inc. and Telus Corp. appear to be trading at a discernible premium to Rogers, these results, 2014 guidance and the disappointing dividend per share hike clearly suggest that Rogers should trade at a discount.”
Over the medium term, the new CEO’s agenda could become an additional stock suppressant, TD Securities analyst Vince Valentini said in a recent note.
“We have no qualms against incoming CEO Guy Laurence. However, we could see some significant disruption as Mr. Laurence looks to clean the slate and put his stamp on the strategy/culture/asset mix.
“Mr. Laurence’s experience at Vodafone UK suggests to us that he will not accept the status quo,” Mr. Valentini said.
Of course, investors can be unduly harsh in meting out discipline to slouching companies.
“It’s pricing in a lot of bad news,” said John Schwinghamer, a portfolio manager at Scotia-McLeod. “But at some point, the discount becomes unreasonable.”
The stock is not at that point yet, said Ryan Bushell, a portfolio manager at Leon Frazer, which holds positions in the three big telecoms.
“If it traded down much more from here, we’d probably be looking to add to positions,” suggesting the $40 range as a possible trigger.
The stock could be penalized by uncertainty over a substantial stretch, but for Mr. Bushell’s long-term focus, Rogers’ fiber and wireless infrastructure makes for a compelling investment.
“We ultimately want to own that infrastructure.”
With files from Reuters