Shaw Communications is one of Canada’s leading network companies and one of the largest providers of residential communication services in Canada. The company has a presence in both wireline (~78% of FY 2020 revenue) and wireless (~22%) divisions.
The Wireline division consists of Consumer (87% of 2020 wireline revenues) and Business (13%) Services. Consumer offers broadband Internet, Shaw Go WiFi, video, and digital phone to residential customers and households. The 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 (70% of 2020 wireless revenues) and equipment (~30%) revenues.
Shaw Communications has more than 7 million subscribers, including 1.9 million wireless customers and over 5 million wireline subscribers (with ~4.5 million consumer subscribers). Its Wireless division currently operates in Ontario, Alberta, and British Columbia, covering nearly 50% of the Canadian population.
The company owns an extensive network of 860,000 kilometers long fiber network providing data networking, video, voice, and Internet services to companies of all sizes. Shaw Direct is one of two licensed satellite Video services available across Canada.
Key Investment Data
- Opportunity Score: 39
- Ticker: TSE:SJR.B
- Sector: Communication Services
- Industry: Telecommunication Services
- Market Cap: 18.20B
- P/E: 20.47
- Dividend Yield: 3.25%
- Payout Ratio (TTM): 67.10%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 2/10
- Dividend Income Fit: 4/10
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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 which helped the company gain significant market share.
Shaw Communications is favorably located to serve 16 million Canadians residing within its current mobile network service area in some of Canada’s largest urban regions. Attractive data plans combined with the latest devices is helping the growth of Freedom Mobile’s subscriber base. The company is also investing in wireless spectrum licenses which are expected to improve network coverage, speed, and overall customer experience across several provinces in Canada.
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 has expanded its portfolio of Internet products with the launch of Fibre+ Gig plans. Shaw also completed several successful 5G trials.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. 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.
The company’s latest results benefitted from its bundling initiatives and a sharp focus on effective cost management. It achieved strong wireless subscriber growth in the first quarter. However, the growth in Internet revenue was offset by declines in video, satellite, and phone subscribers and revenue.
Dividends
Shaw Communications has a stable dividend profile and pays monthly dividends. It sports a dividend growth rate of 3.6% CAGR over the last decade. 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 a dividend yield of nearly 4% and a payout ratio of 74%, currently.
Shaw repurchased shares worth $150 million as share repurchases resumed during the last year. The company returned ~$750 million to shareholders as part of its enhanced return of capital initiatives, consisting of regular monthly dividends and share repurchases.
It also completed VDP in the last year which was a key component of its total business transformation plan. Free cash flow in FY2020 grew by 40% compared to the prior year.
The company witnessed a growth in the wireless customer base through its strong bundled offering. Shaw continues to invest in the deployment of network infrastructure and the launch of next-generation wireless and wireline technologies such as 5G and IPTV.
The company is, however, susceptible to consumer behavior. Shaw Business primarily serves the small and medium-sized market, which are vulnerable to the economic impacts of COVID-19. The management has reaffirmed its FY2021 guidance that Shaw is on track to deliver adjusted EBITDA growth YoY and a free cash flow of ~$800 million.
Free cash flow growth, ample liquidity, and a strong balance sheet should support the company’s guidance and capital returns.
Competition
Shaw Communications faces competition from Bell Canada Enterprises. 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.
Shaw continues to face aggressive price competition. The company competes with both regulated and unregulated entities.
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.
| TickerKey | Ticker | Company | Sector | Industry | Score | Quote | Market Cap | P/E | FPE | EPS | Yield Raw | Yield | PayoutRatio | Payments | Dividend | Chowder | GrowthRating | IncomeRating | Tollbooth | Ambassador | Achiever | Aristocrat | King | Country | Graph |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| TSE:BCE | BCE | BCE | Communication Services | Telecommunication Services | 0.52 | 62.27 | 56.33 | 22.89 | 22.89 | 3.01 | 0.0562 | 5.62 | 1.3450 | 4 | 3.50 | 0.1069 | 5 | 7 | Tollbooth - Regulated | NO | YES | YES | NO | Canada | 1 |
| TSE:T | T | Telus | Communication Services | Telecommunication Services | 0.64 | 27.71 | 35.42 | 29.48 | 29.48 | 1.03 | 0.0456 | 4.56 | 1.3050 | 4 | 1.27 | 0.1107 | 7 | 7 | Tollbooth - Regulated | NO | YES | YES | NO | Canada | 1 |
| TSE:RCI.B | RCI.B | Rogers | Communication Services | Telecommunication Services | 0.42 | 63.68 | 32.26 | 19.84 | 19.84 | 3.60 | 0.0314 | 3.14 | 0.6220 | 4 | 2.00 | 0.0396 | 1 | 4 | Tollbooth - Regulated | NO | NO | NO | NO | Canada | 1 |
| TSE:SJR.B | SJR.B | Shaw Communications | Communication Services | Telecommunication Services | 0.39 | 36.44 | 18.20 | 20.47 | 20.47 | 1.78 | 0.0325 | 3.25 | 0.6710 | 12 | 1.19 | 0.0339 | 2 | 4 | Tollbooth - Regulated | NO | NO | NO | NO | Canada | 1 |
| TSE:QBR.B | QBR.B | Quebecor Inc. | Communication Services | Telecommunication Services | 0.60 | 32.64 | 7.98 | 13.84 | 13.84 | 2.44 | 0.0337 | 3.37 | 0.3850 | 4 | 1.10 | 0.2617 | 5 | 4 | Tollbooth - Regulated | NO | NO | YES | NO | Canada | 1 |
| TSE:CCA | CCA | Cogeco Cable Inc | Communication Services | Telecommunication Services | 0.71 | 118.13 | 5.58 | 14.33 | 14.33 | 8.25 | 0.0217 | 2.17 | 0.3000 | 4 | 2.56 | 0.1266 | 7 | 7 | Tollbooth - Regulated | YES | YES | YES | NO | Canada | 1 |
| TSE:CGO | CGO | Cogeco | Communication Services | Telecommunication Services | 0.72 | 92.99 | 1.34 | 10.66 | 10.66 | 9.07 | 0.0234 | 2.34 | 0.2400 | 4 | 2.18 | 0.1413 | 7 | 7 | Tollbooth - Regulated | YES | YES | YES | NO | Canada | 1 |
Bottom Line
Shaw Communications will continue to focus on wireless, broadband and business as its growth drivers.
The company continues to prioritize network investments enhancing its existing LTE service and preparing for the delivery of 5G services.
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.
