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.

Key Highlights:

• Recently, the group announced that it had offered affordable wireless services and gigabit download speeds across several new locations across B.C. and Alberta. Furthermore, the customers will get Shaw Mobile and Shaw’s Fibre+ Gig internet tier at one of 18 full-service Shaw retail stores at high-traffic locations across B.C. and Alberta.
• The group has become Alberta’s first provincewide internet service provider to offer gigabit download speeds to 100 per cent of its residential customers, following years of investments to upgrade its Fibre+ network.

Q3FY20 Financial Highlights: SJR.B posted a decent quarterly result, amidst the COVID-19 pandemic, wherein the company reported revenue of CAD 1,312 million, as compared to CAD 1,322 million in the previous corresponding period (pcp). The quarter was marked by an increase in service revenues partially offset by a decrease in equipment revenue due to lower subscriber sales and dip in the overall activity due to the temporary closure of several retail stores. Adjusted EBITDA stood at CAD 609 million, significantly higher than CAD 528 million in pcp, due to an increase in underlying performance. 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. The company reported average revenue per user (ARPU) at CAD 38.94 during the quarter, as compared to CAD 37.95 in the previous corresponding quarter.

Q3FY20 Financial Snapshot (Source: Company Reports)

Risks: Continuation of lower demand from the equipment segment on account of tepid macro scenario might dampen the company’s top-line. 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.

Valuation Methodology: Price to CF Based (Illustrative)

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

Stock Recommendation: The stock of SJR.B corrected ~8% so far this year amid volatility in the equity market. Despite lower consumer spending, the company reported an ARPU growth of 2.6% on y-o-y basis, which is encouraging. 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. The company has enhanced its footprints across new locations and offered high-speed internet services, which is likely to drive the demand for the group’s offerings. Further, the work from home concept is a key positive for increasing the ARPU in the next quarter. However, the equipment segment might witness near term setbacks. On the liquidity front, the company generated healthy cash flows and has enough cash balance under its credit facility, which is likely to support the near-term working capital. Despite the current challenging time, the group continue to distribute a dividend, which shows its financial strength. At the last traded price, the stock was offering a dividend yield of 4.89%, which is lucrative considering the current interest rate environment. We have valued the stock using P/CF based relative valuation method and have arrived at a lower double-digit upside (in percentage terms). For the said purposes, we have considered peers like Telus Corp, Rogers Communications Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 24.21 on September 4, 2020.

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

Bausch Health Companies Inc.

Bausch Health Companies Inc. (TSX: BHC) offers diversified health care products and engaged into developing, manufacturing and distribution of a range of pharmaceutical, medical device and over-the-counter products, majorly in the therapeutic areas of eye health, gastroenterology and dermatology. The Company operates through four segments, namely Bausch + Lomb/International, Salix, Ortho Dermatologics and Diversified Products.

Key Highlights:

• The Company announced that its novel topical prescription drug for improving the signs and symptoms of plaque psoriasis in adult patients is now available in Canada. The above product is manufactured in the Quebec manufacturing facility in Laval and is available across Canada and in the United States.
• On August 31, 2020, the company confirmed that it would reduce debt by USD 100 million through the redemption of outstanding senior notes, using cash generated from operations.

Q2FY20 Financial Highlights: Bausch Health declared its quarterly results wherein the Company reported revenue of USD 1,664 million, as compared to USD 2,152 million in the previous corresponding period (pcp). The decline was majorly attributed to 27% lower income from Bausch + Lomb/International segment and 21% decline from Salix due to a negative impact from COVID 19 pandemic. The company reported an operating loss of USD 27 million, as compared to an operating income of USD 257 million in pcp. However, total expense stood lower during the quarter, due to a decline in the selling, general and administrative expense, slightly lower research and development expense, as significantly lower asset impairments while a surge in the other expense remained a drag. The Company reported a higher net loss of USD 325 million, as compared to USD 170 million in the previous corresponding period (pcp), primarily due to an operating loss, while a lower interest expense supported the bottom-line.

Q2FY20 Revenue Bifurcation (Source: Company Reports)

Risks: Any extension in restrictive measures or further outbreak of coronavirus might result in facility shutdown and supply chain disruptions and could hamper the group’s financial performance. The Company has a strong offering, and due to the premium pricing, a section of the product portfolio might witness a tepid demand due to lower consumer spending.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock corrected ~45% so far this year amid volatility in the equity market. The products of the company have tremendous customer acceptance, and the company has a solid reputation, which is a key positive and augurs well for better business prospects when the economy revives and return to the growth phase. The availability of the novel topical prescription drug across Canada and the USA is likely to benefit the company in the near to medium term. The recent announcement for reducing USD 100 million of debt would likely to lower the finance cost of the company in the coming days and would support the company’s margin. The company does not have a debt maturity payment until 2023. The group launched its first Extended Depth of Focus intraocular lens (IOL), LuxSmart, and a new monofocal IOL, LuxGood, in Europe. The group entered into an exclusive licensing agreement with STADA Arzneimittel AG and its development partner, Xbrane Biopharma AB, to develop and commercialize a biosimilar candidate to Lucentis (ranibizumab) in the US and Canada. The company has received several approvals which would contribute to the overall product offerings in the foreseeable future. We have valued the stock using P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Amgen Inc, Bristol-Myers Squibb Co etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 21.24 on September 4, 2020.

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

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