Shaw Provides Income While You Wait

SJR.B - Shaw CommunicationsShaw Communications TSE:SJR.B 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 (90% of EBITDA) and wireless (10%) segments and operates through consumer (71% of revenues), wireless (18%) and business network services (11%) segments.

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.

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. 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.

Shaw - Consumer Ratios
Source: Shaw 2018 Annual Report
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 (22% growth in FY 2018) 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. The company expects Freedom Mobile to be available in about 600 retail locations by early 2019.

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 is expected to improve network coverage and overall customer experience across several provinces in Canada. The company completed the deployment of the 2500 MHz spectrum in FY 2018 and is looking at deploying 700 MHz this year.

 

Shaw - 2018 Revenue
Source: Shaw 2018 Annual Report

The company registered a revenue growth of 7%+ in the last year.

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. The company is also looking at deploying a full IPTV platform in FY 2019. 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.

Ownership of large hybrid fibre-coax networks, strategic partnerships with industry leaders like Comcast, Nokia and Cisco and seamless connectivity experience are the company’s key strengths.

Dividend

Shaw Communications pays monthly dividends and has grown its dividend by more than 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 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 4.8% currently.

Since the acquisition of the wireless business in 2016, the company has demonstrated sharp growth through significant investments and network improvements. The company is targeting to retain and attract higher lifetime and quality value customers by offering big data plans bundled with its devices. Addition of retail locations has made Shaw Communications’ wireless products more easily accessible.

Shaw Communications introduced TBT (total business transformation), a multi-year initiative designed to reinvent its operating model. As a result of this program, the company is anticipating annualized savings to be fully realized in fiscal 2020. The company registered a growth of 9% year-over-year in its average revenue per unit (ARPU) in the last quarter and exceeded its free cash flow guidance too.

Shaw Communications is expecting its operating income (before restructuring costs and amortization) to grow by 4%-6% and free cash flow in excess of $500 million in FY 2019. The company also indicated that capital expenditure on its wireline business will be moderate going forward in FY 2019 and it will be in a better position to generate long-term, sustainable free cash flow growth.

A sound balance sheet, strong investment grade ratings also grant enough financial flexibility to this Dividend Aristocrat to raise dividends in future.

Competition

Shaw Communications faces competition from Bell Canada Enterprises TSE:BCE, Telus TSE:T and Rogers Communications TSE:RCI.B in the wireless segment. Freedom Mobile is a relatively new entrant in the highly competitive Canadian wireless market which is dominated by the above three players. 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. Investments in infrastructure, technology and customer service can differentiate one player from another and Shaw Communications has invested heavily in these areas to stay ahead of its peers.

Shaw - Freedom Mobile Penetration
Source: Shaw 2018 Annual Report

Bottom Line

Shaw Communications has been proactively investing to create a strong position in the Canadian mobile market. The company’s focus on wireless, consumer internet and business should drive long term growth.

Shaw Communications is poised to benefit from significant growth in the wireless segment, given its network expansion and improvement expenditures. Growing demand for seamless connection and ownership of unique hybrid fibre coax and Wi-Fi networks should act as tailwinds for its wireline business. 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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