In response to a request from an Inner CircleMember, Pat McKeough recently discussed one of Shaw Communications. In an industry in transition, Shaw made a major wireless acquisition in 2015 and has enhanced its Internet and television offerings, which has helped to keep revenues up, while the dividend yields 4%.
Q: Pat, I have owned Shaw Communications for a number of years and have benefitted from a steady dividend payment. It seems to me though, that competitive risks are increasing for this company. What is your opinion of this company as an investment? Thank you.
A: SHAW COMMUNICATIONS (symbol SJR.B on Toronto; www.shaw.ca) is one of the largest cable-television operators in Canada. It’s also a provider of satellite TV, high-speed Internet, and telephone services.
Shaw entered the data-centre business through the acquisition of ViaWest in July 2014 for $1.2 billion U.S. It also entered the wireless field through the acquisition of Wind Mobile in December 2015 for $1.6 billion.
In the three months ended February 28, 2017, Shaw’s revenue rose 13.3%, to $1.30 billion from $1.15 billion. Earnings per share, excluding discontinued operations, rose 25.0%, to $0.30 from $0.24. Cash flow per share rose 14.5%, to $0.87 from $0.76.
The company lost only 5,000 cable customers in the latest quarter, down from 42,000 in the same period a year earlier. That’s also well below consensus expectations for a loss of 30,000. The main reason gap was Shaw’s enhanced high-speed Internet offering and its new television product, BlueSky TV. It runs on Comcast’s platform and was recently launched across Shaw’s entire network in Western Canada. New, more attractive bundling has helped to keep customers.
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Growth stocks: Shaw reportedly looking to sell U.S. data centre firm
The company is now reportedly looking for a buyer for ViaWest, the U.S. data centre company it bought three years ago. ViaWest owns about 30 data centres in several U.S. states, including Colorado, Nevada, and Minnesota. The move is Shaw’s latest effort to streamline its operations. Last year, it sold its media assets to sister company Corus Entertainment Inc. for $2.65 billion.
The sale of ViaWest could fetch well over the $1.2 billion U.S. Shaw paid for the company.
WIND changed its name to Freedom Mobile in November 2016. It’s now Canada’s fourth largest wireless company, although it is much smaller than the wireless units of BCE Inc., Rogers Communications Inc. and Telus Corp, Shaw’s main rivals in Canada’s Western provinces.
The company’s shares yield a high 4.1%. Shaw trades at 21.9 times this year’s expected earnings of $1.31 a share.
The company faces strong competition for TV and Internet subscribers from Telus Corp. Shaw continues to upgrade its network to advanced 4G LTE (long-term evolution) from 3G. That puts it at a disadvantage with rivals until the move is completed, likely later this year. As part of the transition, Wind customers will also need new phones to use Freedom’s LTE network since most Wind phones are not yet compatible with LTE.
Inner Circle recommendation: Shaw Communications is okay to hold.
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