Shaw Communications (Shaw Communications Stock Quote, Chart, News, Analysts, Financials TSX:SJR.B) is coming off a poor year where the stock lost 15 per cent and while the downturn has been sector-wide for Canadian telecom companies, investors should be looking closely at Shaw, says portfolio manager Ryan Bushell, who likes its attractive dividend and potential catalysts.
Shaw’s negative return in 2020 was par for the course in the Canadian telco space, where competitors BCE (BCE Stock Quote, Chart, News, Analysts, Financials TSX:BCE) and Rogers (Rogers Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B) were also in the red while Telus (Telus Stock Quote, Chart, News, Analysts, Financials TSX:T) managed to get out even for the year.
It was a somewhat strange scene for defensive-minded stocks like these, which normally do well in times of economic volatility such as our current one, as investors tend to flock to more stable, high-dividend names. That was certainly not the case in 2020 for Canada’s telcos.
Yet at the same time, while revenues have been hurt during the COVID-19 pandemic for companies like Shaw, the overall impact has been not so much. Witness Shaw’s latest two quarters, where the company beat analysts’ estimates, with revenue coming in either flat year-over-year or just slightly lower than comparable numbers a year earlier. Overall for its fiscal 2020 (year ended August 31), Shaw’s top line managed to grow by 1.3 per cent from 2019 to $5.407 billion, while adjusted EBITDA was up a full 11 per cent to $2.391 billion.
Shaw, which has cable, internet and wireless offerings and owns Freedom Mobile, seemed to shake off the ill-effects of COVID-19, providing fiscal 2021 guidance including positive year-over-year adjusted EBITDA growth, consolidated capital investments of about $1.0 billion and free cash flow of about $800 million.
“While the financial impacts from COVID-19 in the second half of fiscal 2020 were not material, the situation is still uncertain in terms of its magnitude, outcome, duration, resurgence and/or subsequent waves,” the company said in a press release on October 30. “We believe our business and facilities-based networks provide critical and essential services to Canadians and will continue to remain resilient in this dynamic and uncertain environment.”
But the drop in Shaw’s share price is but one reason for investors to take notice, says Bushell, president at Newhaven Asset Management.
“I always focus on capital preservation and safety first, and Shaw has drifted down along with the other Canadian telcos towards the end of last year, and to me, I don’t really understand why,” said Bushell, president at Newhaven Asset Management, speaking on BNN Bloomberg on Wednesday.
“The company is moving along, the wireless build is going pretty well and they’re launching the Shaw wireless brand in Western Canada which should help them to gain subscribers, they’re gaining subscribers in Ontario with the Freedom brand and they continue to be able to purchase spectrum at a discounted rate relative to the other incumbents,” Bushell said.
Bushell said there’s reason to believe that change is afoot at Shaw, including the potential for a takeout by one of Canada’s larger telcos.
“What’s really at play here behind the scenes is the patriarch, JR Shaw, passed away last year and a takeover or a partnership or anything to do with reorganizing the company would not have been possible with him still at the helm,” Bushell said.
“That now is changing and I think you might see the company change its policies and be potentially in play for a takeover or a network sharing agreement with another incumbent, likely Rogers, and so I think there are some catalysts for the company,” he said.
“[Shaw’s dividend] has crept up to about a five-and-a-quarter per cent yield, and as an investor or a patient investor, you tuck away your five per cent and you wait for something good to happen, and I think that’s the case with Shaw,” Bushell added.
Shaw, which will deliver its first quarter fiscal 2021 results on January 13, posted fourth quarter revenue of $1.35 billion, which was the same as its Q4 fiscal 2019, while adjusted EBITDA was $594 million compared to $534 million a year earlier and EPS was $0.34 per share compared to $0.32 per share a year ago. Analysts had estimated $1.01 billion in revenue and earnings of $0.22 per share. Shaw added 60,000 wireless customers over the quarter and service revenue growth of 15 per cent.
Shaw has some support in the analyst community, as well, where in a December 10 update to clients, Scotiabank analyst Jeff Fan kept his “Outperform” rating but lowered his target price on Shaw from $29.50 to $28.50, which at the time of publication represented a projected 12-month return of 22 per cent. According to Tipranks, Shaw currently has nine analyst ratings, with seven “Buys” and two “Holds.”