Skip to main content

Report on Business Rogers upgraded as analysts say Canada’s wireless surge is slowing but not stalled

Canada’s wireless market may be slowing down but analysts say it’s too soon to pronounce the momentum of the past two years dead.

With BCE Inc. set to post its first-quarter results Thursday, investors will pay close attention to the number of new contract wireless customers the company attracted. Rival Rogers Communications Inc. reported disappointing results two weeks ago and its shares fell more than 7 per cent to $65.81 in the days that followed, as multiple analysts either downgraded the stock or revised down their share-price targets.

But Rogers got a boost Wednesday and closed at $67.93, up 48 cents per share, after Desjardins Securities analyst Maher Yaghi upgraded the stock to a buy, saying the company’s core assets and management team remain solid and that the recent sell-off was “overdone.”

Story continues below advertisement

“Let’s be honest, Rogers’s first-quarter subscriber loadings were horrible,” Mr. Yaghi wrote in a report, pointing to the fact that the company added just 23,000 new contract wireless customers in the quarter, plummeting from 95,000 in the same period last year.

However, he said quarter-to-quarter fluctuations tied to items such as lower promotional activity or a lack of exciting new smartphones (which Rogers cited as reasons for its miss) are not accurate predictors of “true consumer demand over multiple years.”

“The real drivers of higher subscriber loadings are increased wireless penetration and population growth. Both factors, which continue to occur in Canada, hint at further subscriber increases in the Canadian wireless industry,” Mr. Yaghi said.

TD Securities analyst Vince Valentini made a similar point last week, noting that wireless penetration (the number of cellphone subscriptions per 100 residents) sits at about 89 per cent in Canada, compared with about 120 per cent in the United States, meaning there is still much more room to expand here.

After three years of declines in the number of new contract customers, Canada’s wireless market turned around in 2016 and it has surged even more over the past two years.

In 2015, the three national carriers (Rogers, BCE and Telus Corp.), along with regional players Quebecor Inc.'s Videotron and Shaw Communications Inc.'s Freedom Mobile, added a total of 902,000 contract subscribers. For last year, that number had almost doubled to 1.7 million.

Mr. Valentini predicts the five carriers will bring in a total of 1.5 million new contract customers in 2019, but says the dip doesn’t worry him.

Story continues below advertisement

"The surge … was likely neither sustainable nor was that type of growth priced into Canadian wireless stocks. As such, a modest pullback in 2019 is not something that will shake our confidence in the investment quality of these companies,” he wrote in a report to clients.

RBC Dominion Securities analyst Drew McReynolds also expects a moderate impact from what he called the “widely anticipated step-down in wireless activity in Canada.”

“While wireless growth expectations for Rogers and peers in 2019 will likely have to be tempered somewhat given the slower start to the year, we continue to believe that a soft landing scenario is still the most likely outcome for the Canadian wireless industry,” he wrote in a report to clients on April 18, when Rogers reported its first-quarter results. (Mr. McReynolds trimmed his price target for the company to $74, down from $76, and maintained a hold rating on the stock.)

So the industry is not expected to drop off a cliff, but slower growth will still have an impact. Scotia Capital analyst Jeff Fan downgraded Rogers to a hold from a buy last week, writing, “we emphasize that the shift in our view is mainly driven by our wireless industry outlook and has less to do with the company.”

Mr. Fan said adding fewer contract customers will lead to slower service revenue growth, particularly as increasing competition from the regional players could “make price increases more difficult to stick without impacting subscriber loading and/or [customer turnover].”

BCE reports on Thursday morning before markets open. Analysts on average expect the company, which is also holding its annual shareholder meeting in Toronto, to add about 48,000 contract wireless customers.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter