Take a pass on Shaw Communications, this fund manager says

Choosing among defensive picks in the Canadian telco space isn’t easy, but one stock you might want to stay clear of is Shaw Communications (Shaw Communications Stock Quote, Chart TSX:SJR.B), says portfolio manager Michael Sprung, who argues it’s too early to tell how the company will make out in the still-evolving wireless market.

Calgary-based Shaw was having a gem of a start to 2019 before the stock hit a rough patch last month with the release of its quarterly earnings. SJR.B was up almost 13 per cent year-to-date by April 3, clawing back some of the ground lost over a poor 2018. Then its fiscal Q2 dropped on April 9 and the stock has trailed off since.

Shaw’s second quarter featured revenue slightly under analysts’ expectations at $1.32 billion compared to the consensus forecast of $1.37 billion. The top line, which was pulled down by lower numbers in its wireless segment, was off from last year’s second quarter at $1.31 billion. The company earned $155 million or 30 cents per share, which was equal to the Street’s 30 cents per share and up from a loss of 35 cents per share a year prior.

Sprung says that fierce competition in the telecom space makes the choice for investors a difficult one.

“We’ve been looking at the results just recently coming out from the telecom companies. This whole movement towards more streaming and purchasing of TV packages is certainly weighing on them. We’re seeing a very competitive market in the wireless phone market now,” said Sprung, president of Sprung Investment Management, to BNN Bloomberg on Wednesday.

“With Shaw, it’s a little too early to tell how well they’re going to be doing. Certainly, with their movement lately to compete more in the wireless market they’ve made some inroads, but it’s probably been on the back of pricing as opposed to seeing any clear competitive advantage,” he says.

“One of the problems that we have in Canada is that it’s a very oligopolistic industry and Canadians pay high rates for these telecom services, so, I think there are some limits as to how much prices can be raised and, to a great extent, at any given point in time it’s more a function of who’s gaining market share and at what cost,” he says.

Among the top telco stocks in Canada, BCE is the winner so far in 2019, currently sitting up 11 per cent. Telus is up nine per cent, Shaw is up two per cent and Rogers Communication is down two per cent.

Sprung says that even with Shaw’s attractive dividend, there are better options.

“One thing about Shaw is that is has a dividend yield now in excess of four per cent, which is pretty attractive. But personally, I would be looking at either BCE or maybe even Telus as an alternative,” he says.