Investors watch, wait for wireless update from Shaw

Shaw Communications Inc. showed investors it can perform under the gun last quarter, delivering strong profit despite facing significant competition from chief rival Telus Corp. Analysts roundly lauded the Western Canada cable giant for an unexpectedly buoyant financial performance.
That however is where the rosy sentiment ends, with many market watchers still very uncertain about what lies ahead for Shaw over the medium-term. “Shaw is feeling the competitive impact from a resurgent Telus … and facing multiple compression pressures as its organic growth rate is slowing,” Maher Yaghi at Desjardins Securities said in a note this week.
The incumbent Internet and television provider for Alberta and British Columbia continues to lose market share to Telus’s Optik product bundle, he noted, while room for growth is limited by a maturing market for its core products. That leaves wireless as the firm’s most significant opportunity for growth.
Shaw paid $190-million three years ago for spectrum that would get it into the game, competing with incumbents Rogers Communications Inc. and Telus for mobile customers, while preventing the latter from poaching its wireline customer base. The firm has oscillated heavily since, in part because it was preoccupied by the $2-billion acquisition of the Canwest media assets last year, which have proved a savvy buy in isolation, but as at least one analyst says, at what longer term cost?
“Without wireless, Shaw would be more exposed” to further market share declines, Dvai Ghose at Canaccord Genuity said Wednesday.
He stops just short of suggesting the cable operator may abandon the endeavour — “Without wireless we wonder what will drive growth?” — but does note that U.S. cable operators Shaw closely follows, like Cox Communications, also appear in a sustained holding pattern.
A greenfield build, which is what Shaw is faced with, will be a difficult and costly undertaking but there may be little choice, the analyst said noting that the Canwest deal as well as steady dividend increases, though pleasing to investors, have put added strain on the balance sheet.
“While Shaw has the balance sheet liquidity to pursue wireless, we wonder if it can pursue a $1-billion-plus wireless build and remain investment grade,” he said.
Desjardins’ Mr. Yaghi said in his July 11 note, “Shaw lacks a clear wireless strategy,” referring to vague comments again from management made on the firm’s last earnings call.
Brad Shaw, chief executive, said an update will be provided to investors before the summer is out.
Mr. Yaghi maintains his hold on the stock with a $23 price target. Canaccord’s Mr. Ghose also ranks the stock a hold with a $21 price target.

Source: National Post