Shaw – Strictly an income investment at this moment

SJR.B - Shaw CommunicationsShaw Communications is one of Canada’s leading network company and one of the largest providers of residential communication services in Canada. The company has a presence in both wireline (80% of revenue) and wireless (20%) divisions. The Wireline division consists of Consumer and Business Services. Consumer offers broadband Internet, Shaw Go WiFi, video and digital phone to residential customers and households. Business provides business customers with Internet, data, WiFi, digital phone, and video services. The Wireless division provides wireless voice and data services through its mobile wireless network infrastructure and comprises of service and equipment revenues.

Shaw Communications serves 3.2 million subscribers, including 1.9 million internet and more than one million Shaw home phone customers. In the wireless segment, more than 70% of the subscribers are on postpaid plans and Shaw’s wireless service is available to over 80 million Canadians. The company owns an extensive network of 860,000 kilometres long fibre network providing data networking, video, voice, and Internet services to companies of all sizes.

Investment Data

Revenue Growth & Market Exposure

Shaw Communications is aggressively expanding in the wireless segment. The company sold off its media business in 2016, to focus on wireless business. It started with the acquisition of Freedom Mobile (WIND) which helped the company gain significant market share. Shaw Communications is favourably located to serve 16 million Canadians residing within its current mobile network service area in some of Canada’s largest urban regions. Shaw Communications is also expanding its wireless retail distribution network in collaboration with retail partners like Walmart and Loblaws. Attractive data plans combined with the latest devices is helping the growth of its Freedom Mobile’s subscriber base. The company is also investing in wireless spectrum licenses which are expected to improve network coverage and overall customer experience across several provinces in Canada. The deployment of 700 megahertz spectrum is complete in Western Canada, and the company is expecting to be fully deployed in the east by the end of fiscal 2020.

>Within the consumer operations, Shaw is steadily growing broadband RGUs and is delivering a better customer experience. Shaw BlueCurve Total bundles its fast internet speeds and IP video with rich content at attractive prices for the traditional or family-orientated consumer segments. The company continues to improve its customer segmentation initiatives and grow its Internet subscriber base through the launch of BlueCurve Total and Freedom Home Internet.

Shaw Communications is focusing on improving broadband growth, internet speeds, and video optimization to drive growth in its wireline segment. The company is making improvements in its TV and internet offerings, which will enable customers to consume data through their multiple devices. Strategic acquisitions and investments should go a long way in driving revenue growth. Shaw Direct is one of two licensed satellite Video services available across Canada.

Shaw’s consolidated revenue increased by 3% in FY 2019. Its wireless business surpassed $1 billion in annual revenues and Shaw delivered strong service revenue growth of 24%. During 2019, Shaw continued to focus on growing wireless and broadband customers, while delivering stable Wireline results. Innovative products like the launch of the Big Gig Unlimited and Absolute Zero plans and intelligent advertising drove Shaw’s subscriber base. It also launched Freedom Mobile in 19 new communities.

Shaw’s IPTV service which was launched in March is now available to ~70% of its video footprint supporting its digital transformation and lowering its cost to serve customers. Shaw’s business division delivered another year of strong revenue growth fuelled by additional product launches and SmartSuite products. The company’s operating model of self-service and digital interactions with customers positions it better to withstand the challenges related to COVID-19 and the lower commodity price environment. Shaw Communications has temporarily closed its 116 corporate Freedom Mobile and Shaw’s 43 retail stores as a response to the threat of the COVID-19 virus and has opened the Shaw Go WiFi network to further support communities during the lockdown.

Dividends

Shaw Communications has a stable dividend profile and pays monthly dividends and has grown its dividend at a rate of 4.7% CAGR over the last decade. The company declared a monthly dividend of $0.09875, which translates to roughly $1.19 per share on an annualized basis. Shaw last raised its dividend by more than 7.7% in 2015. The company has not raised its payout in the past few years owing to a huge capital outlay on network improvement and wireless network expansion, which once fully deployed should drive dividend growth in the future. It has an impressive dividend yield of 5.4% and a payout ratio of 87%, currently. The company had implemented a new NCIB program to repurchase up to 25 million Class B shares but has now suspended its additional share repurchases under its NCIB as a result of the COVID outbreak.

The company is on track to deliver VDP savings this year, as the program is nearing its end. The company estimates to deliver $200 million in savings and has already achieved $135 million of total operating and capital savings under the VDP program in 2019. It also completed its multi-year and enterprise-wide Total Business Transformation (TBT) announced in February 2018, which was focused on reinventing its operating model. The company registered a growth of 3% year-over-year in its ARPU in the latest quarter.

In its latest quarterly conference call, the management has withdrawn its previously issued fiscal 2020 guidance but said that it should be substantially in line with its previous guidance of delivering EBITDA growth in between 11% and 12% YoY and cash flow of $700 million in FY 2020. The CEO also said, “Canadians and businesses alike, are depending on reliable connectivity services to remain in touch with family, friends, colleagues and customers. As we have seen an increase in network traffic, particularly in Wireline, I am pleased to confirm that our network performance has been exceptional. It is because of the significant facilities-based investments and strong and capable networks that operators, such as Shaw, can continue to provide these critical Wireline and Wireless essential services into homes, businesses, and communities across our country and quickly adapt to the changing needs of our customers”.

Competition

Shaw Communications faces competition from BCE, Telus and Rogers Communications in the wireless segment. Freedom Mobile, Shaw’s lower-cost wireless carrier, is a relatively new entrant in the highly competitive Canadian wireless market which is dominated by the above three players but is gaining market share in Ontario as well. The company competes with both regulated and unregulated entities. It is comparatively behind competitors on the 5G technology.

Likewise, the company competes with other telecommunications carriers in providing high-speed data and Internet connectivity services. Ownership of large hybrid fiber-coax networks, strategic partnerships with industry leaders like Comcast, Nokia and Cisco and seamless connectivity experience are the company’s key strengths.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:BCEBCEBCECommunication ServicesTelecommunication Services0.6756.1638.0217.0115.753.300.05935.931.009143.330.110468Tollbooth - RegulatedNOYESYESNOCanada1
TSE:TTTelusCommunication ServicesTelecommunication Services0.6723.2322.1919.8615.751.170.05025.020.995741.170.119967Tollbooth - RegulatedNOYESYESNOCanada1
TSE:RCI.BRCI.BRogersCommunication ServicesTelecommunication Services0.4554.7020.9116.4715.753.320.03663.660.602442.000.050324Tollbooth - RegulatedNONONONOCanada1
TSE:SJR.BSJR.BShaw CommunicationsCommunication ServicesTelecommunication Services0.4424.509.4018.9515.751.290.04844.840.9186121.190.048424Tollbooth - RegulatedNONONONOCanada1
TSE:QBR.BQBR.BQuebecor Inc.Communication ServicesTelecommunication Services0.5030.567.6814.3415.752.130.02622.620.375640.800.254254Tollbooth - RegulatedNONOYESNOCanada1
TSE:CCACCACogeco Cable IncCommunication ServicesTelecommunication Services0.62102.104.9113.4615.757.590.02272.270.305742.320.126977Tollbooth - RegulatedYESYESYESNOCanada1
TSE:CGOCGOCogecoCommunication ServicesTelecommunication Services0.6681.511.1710.1815.758.010.02332.330.237241.900.157177Tollbooth - RegulatedYESYESYESNOCanada1

Bottom Line

Shaw Communications will continue to focus on wireless, broadband and business as its growth drivers. The company is expecting bottom-line growth on the back of asset realignment and evolution of its operating model going forward. Shaw should continue its dividend payment streak with its stable cash flows and higher earnings growth from the wireless segment, given its network expansion and improvement expenditures. A huge capital investment plan in the recent past has prevented the company from raising its dividend. However, the company should be able to resume its dividend growth streak once it has completed its CapEx investments in the wireless business. Shaw continues to be an income investment while it positions itself as a growth player in the wireless business.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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