Shaw Communications Inc.

Shaw Communications Inc. (TSX: SJR.B) is a leading Canadian communication company and provided broadband Internet services, WiFi and digital phone services to the Consumers and Corporates.

Recently, the Company declared monthly dividends of CAD 0.09875 per shareholder, payable on September 29, 2020.

Q3FY20 Financial Highlights: Shaw Communications Inc. announced its quarterly numbers, wherein the Company reported revenue of CAD 1,312 million, down 0.8% on y-o-y basis. The quarter was marked by a 37% decrease in the wireless equipment revenue due to lower subscriber sales and activity as a result of the temporary retail store closures. However, wireless service revenue grew to CAD 206 million, depicting a growth of 17% on y-o-y basis driven by the higher subscriber base and growing penetration of Big Gig data plans. Adjusted EBITDA soared to CAD 609 million, reflecting a solid growth of 15.3% on y-o-y basis. Meanwhile, the Company showed margin improvement and posted an adjusted EBITDA margin of 46.4%, as compared to 39.9% in the previous corresponding period. Net income, during the third quarter of FY20 stood at CAD 184 million against CAD 227 million, a quarter ago. Free cash flow for the quarter stood at CAD 221 million compared to CAD 174 million in Q3FY19 underpinned by higher adjusted EBITDA and lower capital expenditures.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group might face pressure on its revenue as roaming revenue is likely to be on the lower side as most of the people are staying indoors. Further, due to the challenging environment, the group might record a reduction in subscriber base.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected ~10% so far this year due to weak investors’ sentiment on account of COVID 19 pandemic. The financial performance of the Wireless segment remains robust in the current quarter, indicating operational efficiency in the business, which is impressive. Meanwhile, the Group focuses on scaling the wireless business and would continue to grow its subscriber base in the coming days through several customer-friendly plans. Further, the company introduced new Internet products which would cater to all customer group and is continuing investments in the Fibre+ networks. The Company’s Fibre+ network offers advanced telecommunications networks across North America and provides high-speed internet at a reasonable price. Further, the company did not reduce its dividend amid a challenging economic environment, which is encouraging. At the last traded price, the stock was offering a dividend yield of 4.98%, which is lucrative considering the current interest rate environment. We have valued the stock using the Price to CF based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). For the said purpose, we have considered peers like Quebecor Inc, Rogers Communications Inc, Cable One Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 23.80 on July 13, 2020.

SJR.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Richelieu Hardware Ltd 

Richelieu Hardware Ltd (TSX: RCH) is engaged in importing, manufacturing, and distributing specialty hardware and complementary products. The company offers products which are used in home and office furnishing such as storage and closet, kitchen and bathroom cabinet, door and window, residential and commercial woodworkers etc.

The Board of Directors approved a quarterly dividend of CAD 0.0667 per share, payable on August 7, 2020.

Q2FY20 Financial Highlights: Richelieu Hardware declared its quarterly results, wherein, the company reported sales of CAD 248.253 million as compared to CAD 281.067 million, a year ago. The decline was driven by lower sales from both Canada and the US regions due to lower working days on account of the shutdown of stores due to COVID 19 pandemic. Earnings before amortization, financial costs and income taxes stood at CAD 33.770 million, as compared to CAD 34.371 million in the previous corresponding quarter. The decline was majorly driven by lower revenue, partially supported by lower operating expenses. Earnings before income taxes stood at CAD 24.448 million against CAD 26.370 million in pcp, due to a higher amortization expense, partially offset by a lower finance cost. The company reported a lower net income of CAD 17.783 million as compared to CAD 19.189 million in the previous corresponding quarter. The company reported cash and cash equivalents of CAD 42.562 million, while total assets stood at CAD 729.941 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The operations of the Company were impacted by the closure of the distribution centers, primarily across the Quebec, Ontario and Northeast and Midwest markets. Extended shut down of the distribution centers would further dampen the performance of the Company.

Valuation Methodology: P/E Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of RCH stood resilient in the recent past and gained ~12% and ~29% in the last six months and one year, respectively. Despite a lower number of working days due to the shutdown of non-essential businesses, the Company managed to report stable performance, which is a key positive. The Company is financially strong with low D/E ratio and has ample liquidity of net cash of CAD 31.2 million, which seems sufficient to navigate through the current challenging environment. Furthermore, the Management clarified that it has the capital to meet its ongoing commitments and obligations and fund its financing and investing activities for the current financial year. The stock soared ~15% in the last one month and is trading towards the upper band of its 52-weeks trading range of CAD 31.95 and CAD 20.52. We have valued the stock using the P/E based relative valuation approach and arrived at a target price offering lower single-digit down side potential (in % terms). For the said purpose, we have considered peers like Sleep Number Corp, Leggett & Platt Inc, Kaman Corp etc. Hence, we recommend a ‘Watch’ stance on the stock and look for the better entry point at the closing market price of CAD 31.59 on July 13, 2020.

RCH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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