Shaw Communications Inc

Shaw Communications Inc. (TSX: SJR.B) is a Canadian cable company which is one of the biggest providers of Internet, television, and landline telephone services in British Columbia, Alberta, Saskatchewan, Manitoba, and northern Ontario. The group operates through two segments: Wireless and Wireline.

Why Should Investors Book Profit?

• Rogers Communications Inc. acquiring the company: Recently the company revealed that Rogers Communications Inc. ("Rogers") has agreed to buy all of Shaw's issued and outstanding Class A Participating Shares ("Class A Shares") and Class B Non-Voting Participating Shares ("Class B Shares") in a deal for approximately CAD 26 billion.
• Weak liquidity profile: In Q3 2021, the company's quick ratio was 0.76x compared to the industry median of 1.11x, while the current ratio stood at 0.80x against the industry median of 1.29x. These lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Long cash cycle days: The company’s Cash Cycle (Days) is increasing compared to the previous sequential quarter, implying the company is taking more days to convert its inventory to cash. In Q3 2021, its Cash Cycle stood at 52.3 days against 46.7 days in Q2 2021. Also compared to industry median its very high.
• Stretched Valuation: b shares are available at an NTM PE multiple of 23.5x compared to the industry (Telecommunication Services) median of 18.8x. While on NTM Price/ Cash Flow multiple it trades on 9.7x against an industry median of 6.3x. This implies that the shares are overvalued against the industry. The matrix below reflects that the company is overvalued against the industry on many multiples.

Valuation Methodology Illustrative: Price to Cash Flow 

Stock recommendation

The company's financial figures improved in Q3 2021, but its bad liquidity profile against an industry suggests that the company's short-term commitments are increasing which is not a good sign. Its cash cycle days are also growing consecutively and are higher than the industry median, which isn't a good indication signaling the firm is taking longer to convert its inventory to cash. Furthermore, the stock of SJR.b trades at overvalued multiples compared to the industry. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 36.74 on October 13, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

Waterloo Brewing Ltd.

Waterloo Brewing Ltd engages in the production and distribution of alcohol-based products. Its products are distributed to end consumers primarily through The Beer Store in Ontario and Provincial Liquor Boards across Canada. It operates in a single industry segment which involves the production, distribution and sale of alcohol-based products.

Why Should Investors Book Profit?

• Declining sales volume: Branded sales volumes decreased in the second quarter of fiscal 2022 by 3.3% over fiscal 2021’s second quarter sales volumes. The decrease was driven primarily by softness in the Company’s Laker, and Waterloo brands.
• Lower margin profile v/s Industry: In Q2 2022, the company witnessed lower performance in gross margin and operating margin compared to the industry median, which exhibits the pressure on the company.
• Weak liquidity profile: In Q2 2022, the company's current ratio was 0.83x compared to the industry median of 1.56x. While its Quick ratio was also on the lower side at 0.36x V/s 1.16x. Both these lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 116.3 days compared to an industry median of 19.0 days.
• Highly Leveraged Balance Sheet: At the end of Q2 2022, WBR’s Debt/Equity position stood at 1.75x whereas industry median is 0.87x. Moreover, its % long term Debt to total capital stood at 46.0% whereas industry median stood at 31.0x. This implies poor debt protection metrics.
  

Valuation Methodology Illustrative: EV to Sales 

Stock recommendation

Branded sales volumes decreased in the second quarter of fiscal 2022 by 3.3% over the previous corresponding period, still the company managed to post higher revenues. However, it failed to beat the industry median margins on many fronts, which exhibits the pressure on the company. Furthermore, the company's liquidity ratios are in poor shape, and it is significantly leveraged, implying that the balance sheet is at danger. Additionally, it holds higher Cash Cycle (Days), implying the company takes more days to convert its inventory to cash. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 6.52 on October 13, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.