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Tuesday, October 31, 2006

Analyzing Rogers Communications (RG)- A Near Duopoly

By Yaser Anwar, CSC of Equity Investment Ideas

Nikhil Hutheesing, editor of Forbes Wireless Stock Watch, recommends buying shares of Canadian cable company, Rogers Communications (RG).

Toronto-based Rogers does business in four segments: cable, wireless, media, and telecom. The $18 billion company was founded in 1920 and currently provides cable television service, high-speed Internet access, and cable telephony service to more than one million customers in Canada. It also owns 314 video stores.

Rogers’ operating profit grew by 31% in the second quarter on a 29% rise in revenues, led by a 57% growth in sales at the cable division. Over the past four quarters, Rogers has produced $1.56 billion in operating cash flow on $7.54 billion in sales.

Shares of Rogers trade in the US, and had changed hands for as little as $36.62 on April 3 of this year. They’ve since advanced 54% and hit a new 52-week high on Friday, closing at $56.98, or 44.5 times expected 06 EPS of $1.28.

Even with that kind of a multiple, Rogers sports a modest 0.46 price-earnings growth (PEG) ratio, indicating that shares are relatively cheap if the company achieves the 30% annualized growth over the next five years that analysts have forecasted.

Hutheesing believes there are good reasons to be optimistic about Rogers. “Rogers represents one of the few full service communication plays available to investors,” he says. “In the U.S., no similar company exists. There are cable TV companies that offer high speed Internet access and Voice-over-IP telephone service. There are also wireless service providers like Cingular and Verizon Wireless that offer cell phone service and broadband 3G service and telecom companies that provide Internet access via DSL. In Canada, Rogers Communications offers customers all of these ”options.”

The company’s communications portfolio is comprehensive and, Hutheesing points out, it’s doing business in a fertile market. “Besides its extraordinary wealth of assets, Rogers operates in a market with greater growth opportunities than exist in the U.S., because the market for wireless is only about 50% penetrated in Canada compared to 70% in the U.S.,” says Hutheesing. “So its growth rates will be higher than companies such as Sprint Nextel and Verizon Wireless.

Hutheesing originally recommended Rogers in May of 2006 but remains a bull at today’s prices. “Rogers is moving aggressively on all fronts and plays a key role in Canada's communication systems, and I think the company's shares offer impressive upside ahead.”
Yaser's Take: I've resided in Canada for almost two years now. Over here you either use Rogers for your cable TV, internet & communication (Landlines and/or mobiles) needs or you use Bell.

Unlike the US, where you have- Comcast, AT&T, Verizon, Cingular etc, these two companies, Bell & Rogers, have the lion share of the market, a duopoly you can say.

From a consumer's point of view this gives you less choice, but from a shareholders' perspective you couldn't ask for more. There are a couple of small companies which seek to full-fill your cable and cellular needs, but lack the economies of scale that Bell or Rogers have.

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