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People walk in front of the the Rogers Building, quarters of Rogers Communications in Toronto, on Oct. 22.CARLOS OSORIO/Reuters

The dramatic board upheaval at Rogers Communications Inc. is starting to translate into analyst downgrades, amid concerns that leadership uncertainty could weigh on the wireless giant as it navigates the pandemic and strong competition within the telecommunications sector.

On Monday, TD Securities analyst Vince Valenti slashed his target price for the stock – the price at which he expects the stock will trade within 12 months – to $69 from $76. That amounts to a 10-per-cent cut.

“As much as we like the assets and the improving momentum at Rogers” – including benefits from an upcoming deal to acquire Shaw Communications Inc., giving Rogers a national footprint for its wireless business – “we believe it is necessary to implement a discount on our target price related to this uncertainty on the go-forward management team,” Mr. Valenti said in a note.

Though Mr. Valenti maintained a “buy” recommendation on the stock, given his belief that the shares trade at a significant valuation discount to rivals, he cautioned that volatility could pick up in the near term.

Tim Casey, an analyst at BMO Nesbitt Burns, also maintained a “buy” recommendation but cut his target price to $68 from $72, noting that the Shaw transaction could be delayed by the turmoil.

Drew McReynolds, an analyst at RBC Capital Markets, trimmed his target price on the stock to $72 from $76. He also lowered his recommendation to “sector perform” from “outperform.”

“Collateral damage now seems inevitable, and in our view will only grow the longer a definitive resolution takes,” Mr. McReynolds said in a note.

This collateral damage, he added, could include less effective management while Rogers is still trying to emerge from the pandemic and at a time when competition within the telecom sector is intensifying. It could also mean a difficult road back to re-establishing confidence around corporate governance at a company still largely controlled by the Rogers family through a dual-class share structure.

“In our view, functioning governance and family-Board-executive alignment absolutely do matter at this juncture for Rogers with respect to creating value for shareholders from current levels,” Mr. McReynolds said.

He pointed to day-to-day operations, but also critical upcoming decisions surrounding the Shaw transaction, including financing the deal and integrating the two companies.

Rogers’ share price had been holding up reasonably well over the past couple of weeks, even after reports that the company’s chair, Edward Rogers, had attempted to replace chief executive officer Joe Natale – leading to chaotic upheaval within the board of directors and uncertainty over whether the current management team will remain or be replaced.

Yet the share price has trailed that of key peers Telus Corp. and BCE Inc. this year. Part of the reason for this lagging performance, according to analysts, is that Rogers derives a greater share of its profit from roaming charges, which have been slow to return after lockdowns and travel restrictions earlier in the pandemic.

Now, though, uncertainty about the company’s leadership and governance appears to be emerging as a key threat to investor confidence.

The stock slumped 5.3 per cent in midday trading Monday, even as BCE Inc. and Telus Corp. remained relatively steady. Shaw’s share price fell 3.3 per cent, widening the discount between the current price and the agreed-upon takeover price by $6.08 per share, or 15 per cent.

“While both parties support the Shaw acquisition, we believe investors will start to ask questions about the risk these developments pose with respect to the Shaw deal closing,” Aravinda Galappatthige, an analyst at Canaccord Genuity Capital Markets, said in a note.

He does not see a direct threat to the deal arising from the current conflict within Rogers, but expects that incremental risk will be reflected in Shaw’s share price. He also downgraded his recommendation on Rogers to “hold” from “buy” and slashed his target price to $62 from $69 – a 10-per-cent cut based partly on his belief that Rogers’ pain could translate into gains for the company’s key competitors.

“Given we are going into a season of hyperactivity in the wireless market (Black Friday, Cyber Monday, pre-Christmas promos), we suspect these distractions could result in an advantage for BCE and TELUS,” Mr. Galappatthige said.

He added: “We also believe that the current state of affairs with respect to corporate governance at Rogers is yet another reminder to investors of the genuine differences between BCE/Telus and family-controlled entities with dual-class capital structures.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
RCI-B-T
Rogers Communications Inc Cl B NV
-0.72%55.5

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