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.

Recent Highlights:

• The company launched its new internet product Fibre+ Gig, which offers higher download speeds along with the abundance of bandwidth needed to simultaneously enable the many data-intensive applications. The company also launched two other plans with higher internet speeds, namely, Fibre+ 750 and Basic 10, which can be opted by the customers depending on their budget.

• Shaw Communications confirmed the issuance of Senior notes amounting to CAD 500 million, due on December 9, 2030. The funds will be allocated for the purpose of working capital and general corporate requirement, including the repayment of existing debts.

Q2FY19 Financial Highlights: For the period ended February 29, 2020, Shaw communications posted a 3.17% y-o-y growth in revenue to CAD 1,363 million, driven by a strong performance in the Wireless division. The quarter was marked by the addition of 51,000 net Wireless RGUs, including 54,200 postpaid addition and 3,200 prepaid losses. The company posted adjusted EBITDA of CAD 600 million in the second quarter, as compared to CAD 548 million in pcp, led by an improved performance within both the business segments. SJR witnessed higher income from its services revenues from the Wireless segment. Adjusted EBITDA margin stood at 44.0%, as compared to 41,7% in pcp, aided by improved wireless performance. Net income stood higher at CAD 167 million, depicting a growth of 8.4% on y-o-y basis.

Q2FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology: Price/ CF Based Relative Valuation (Illustrative)

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

Stock Recommendation: The products and services are categorized under ‘critical and essential services’ and is immune to the economic cycle. The Company’s Fibre+ network offers advanced telecommunications networks across North America and provides high-speed internet at a reasonable price. The Company also offered more than 100,000 hotspots for free to its customers through Shaw Go WiFi, Canada’s largest Wi-Fi network, which enhances market presence. Under the  Company’s self-connect segment, existing customers are entitled to choose their internet plans and access instant connection as per their convenient, on the other hand, the Company also offers hassle-free scheduling of service appointment, which further enhances the Product presence. Shaw Communications’ innovative pricing and investments in network infrastructure are likely to drive RGUs in the coming quarters. Shaw Communication is an ideal income stock, thanks to the Company’s ability to generate strong cash flows. The stock is offering a decent dividend yield of ~5% amid the lower interest environment, which is attractive. We have valued the stock using P/CF multiple based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered Telus Corp, Rogers Communications Inc, Verizon Communications Inc, etc., as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 23.99 on June 3, 2020.

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

TELUS Corporation

TELUS Corporation (TSX: T) is Canada’s leading diversified communications and information technology company. TELUS, through its wireless segment, generates revenues from mobile (data and voice) and equipment sales. The wireline segment includes voice and data revenues. The Company operates in TELUS Health and TELUS International segments also.

Recently, the Company announced that it would be redeeming the following two notes on 23 June 2020.

-  CAD 400 million 3.60%, Series CM Notes due 26 January 2021

-  CAD 500 million 3.20%, Series CO Notes due 05 April 2021

The above redemption indicates that the group has ample liquidity, and there is no sign of any liquidity crunch for its operations.

Q1FY20 Financial Highlights: For the quarter ended 31 March 2020, the Company posted total revenue of CAD 3,694 million as compared to CAD 3,506 million in pcp. The increase was driven by improved demand within the wireline data services revenue and wireless network segments, partially offset by wireline legacy voice and legacy data services. The group recorded a fall in equipment revenue which was primarily attributable to lower wireless contracted volumes on account of COVID-19 pandemic crisis coupled with lower demand from retail customers. During the quarter, the group added 0.07 million subscribers and currently the Company has a total subscribers base of 10.28 million, reflecting a growth of 5.6% from Q1FY19. Average billing per subscriber per month (ABPU) stood at CAD 72.30, depicting a growth of 0.2% on y-o-y basis, while Mobile phones’ average revenue per subscriber per month (ARPU) reported a 1.2% decline of CAD 58.60 per month. Operating expenses stood higher at CAD 3.01 million, as compared to CAD 2.74 million in pcp due to an increase in employee benefits expense, depreciation and amortization, partially offset by a slight decline in goods and services purchased. Net income stood lower at CAD 353 million, significantly lower than CAD 437 million primarily attributable to higher operating expenses and higher finance costs. The Board of Directors declared a quarterly dividend of CAD 0.29125 per common share, payable on 02 July 2020.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): Price to Cash Flow Based Valuation

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

Stock Recommendation: The stock of Telus stood resilient amidst a major correction in the broader market and corrected ~3% so far this year. The offerings of the company are categorized under ‘essential services’, and the business witnessed a stable demand in the recent past. As most of the consumers are staying at home, higher demand for connectivity is inevitable, which augers well for the company’s business. The stock is offering a lucrative dividend yield of 4.87% amid lower interest rate environment. Further, the company has returned ~CAD 723 million as dividend to the investors so far this year, which is commendable. The group recently announced the redemption of the debentures, which indicates a stable liquidity position for the company. The company reported a higher free cash flow of CAD 545 million, against CAD 153 million, which is impressive. The stock is trading above its 20-days and 50-days simple moving average (SMA) of CAD 22.91 and CAD 22.50, indicating a short-term bullish pattern. We have valued the stock using P/CF multiple based relative valuation method and have arrived at a target upside of lower-double-digit (in percentage terms). For the said purposes, we have considered BCE Inc, AT&T Inc and Orange SA, etc., as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 24.37 on June 3, 2020.

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

Disclaimer

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