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SJR AT A GLANCE

P/E ► 14.9 AVG EV/EBITDA ► 5.60 AVG ROA ► 8.2% AVG ROE ► 20.8% AVG Debt to Equity ► 2.60 AVG Current Ratio ► 0.516 AVG Interest Coverage Ratio ► 4.18 AVG

 

 

 

 

 

 

Note: The dollar values in this article are in Canadian dollars unless otherwise specifically noted.

Shaw Communications is a Canadian Telecommunications company that provides Broadband Technologies, Cable TV, Internet, digital phone, Telecommunications, and satellite services to approximately 3.4 million customers.^[1] Shaw focuses on two segments, Cable and Satellite, and provides services for both homes and businesses. The company makes revenue through subscriptions to its television, telephone, internet, DTH, and satellite services. Shaw operates primarily in Canada, and its only foreign-based subsidiary does not contribute materially to Shaw's revenues.

In 2008, Shaw made total revenues of $3.10 billion, up 11.9% from $2.77 billion in 2007.^[2] Net Income also increased in 2008 by 72.9% to $671.6 million, up from $388.5 million in 2007.^[2] In 2008, revenue was $2.38 billion from the Cable segment (76.8% of total revenues), and $0.73 billion from the Satellite segment (23.2%).^[3] Shaw's revenue growth of almost 50% and net income growth of almost 850% from 2004 to 2008 can mainly be attributed to steady customer growth and increased subscription fees.^[4] During the first three quarters of fiscal 2009, total subscription growth has increased by 34.6%, up from 17,157 to 23,093 new subscriptions, continuing Shaw's customer growth.^[5]

Company Overview

Shaw Communications provides Broadband Technologies, Cable TV, Internet, and digital phone connections to both homes and businesses. It also provides digital satellite video and audio services to customers who prefer satellite connections. It makes revenue through customers' subscriptions to it's services that pay monthly usage fees. Shaw also offers many levels of service, so that the more options customers want, the more expensive their plans.

Shaw has continued to expand its service offerings to attract more customers. For example, the company introduced "Power Boost" in 2008, which gives internet content downloads added speed.^[6] From 2006 to 2008, Shaw's customer base has grown by almost one million new customers to a total of 5,546,460 billion customers.^[7] Furthermore, Shaw concentrates its infrastructures in large urban centers with growth potential, lowering the company's costs.

Business and Financial Metrics

Shaw's revenue increased in 2008 by 11.9% to $3.105 billion, up from $2.774 billion in 2007.^[2] This trend of steady growth has continued since 2004 through 2008. Revenue has grown from $2.08 billion in 2004 to $3.10 billion in 2008, up 49%, net income increased from $70.87 million in 2004 to $671.56 million in 2008, up 848%, total assets have grown from $7.58 billion in 2004 to $8.36 billion in 2008, up 10%, and finally long-term debt has decreased from $3.34 billion in 2004 to $2.71 billion in 2008, down 19%.^[4] The growth in revenues is due to increased subscriptions, as well as a greater number of services with a range of prices to suit all customers needs. During this time, Shaw has expanded its offerings to include such services as VOD, HD television, and digital phone service. Total assets have increased as Shaw has acquired businesses to expand its operations, and it is still continuing to do so because on July 16, 2009, Shaw signed an agreement to acquire Mountain Cablevision Limited, adding even more subscribers to Shaw's customer base.^[8] As Shaw's revenues increased, the company was able to reduce its debt through a combination of paying off loans and refinancing others.

In the first, second, and third, quarters of fiscal 2009, revenue increased by $73.7 million (9.9%), $75.9 million (10.0%), and $69.2 million (8.7%), respectively, when compared to the first three quarters of fiscal 2008.^[9][10][5] Furthermore, the number of subscribers to all services has already increased by 550,779, which is 36.8% higher than subscriber growth in the first three quarters of fiscal 2008.^[5] The increase in revenue is primarily due to steady customer growth and increased service fees.^[11] Shaw has had subscriber growth in all of its product areas.

The values in the table below are in thousands of Canadian dollars except for the percentages.

Business Segments

Shaw Communications focuses on two primary business segments: Cable and Satellite.

Cable (77% of 2008 revenue)^[12]

The Cable segment includes Shaw's Cable TV, Internet, digital phone, and Business Solutions services. Shaw's Business Solutions develops and manages the company's inter-city Fiber Optics network that provides internet and Telecommunications services to large businesses and other organizations.^[1] Shaw Communications is the largest Cable TV provider in Western Canada with over 2.2 million customers in five provinces, including British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario, for a total of approximately 30% of Canada's Cable TV market.^[1] The company has added value to its cable services by increasing its offerings to include Digital Television, Video on demand, high definition television, and digital phone. Additionally, Shaw offers a range of cable service that can include as little as basic programming to as much as HD, premium, VOD, and music channels. Similarly, it offers a range of internet services with downstream speeds ranging from 256 Kbps to 25 Mbps.^[13] In 2005, Shaw entered the "triple play market," a bundling of internet, phone, and cable services common among communications providers, after launching its digital phone service, which is available to over 90% of households.^[13] Following its other services, Shaw has different levels of phone service with added calling features at each level of service, and accommodates households and small, medium, and large businesses. Furthermore, it routes telephone traffic to lowest cost long distance providers to cut costs. The Cable segment $2.38 billion in revenue for the company in 2008.^[12]

Satellite (23% of 2008 revenue)^[12]

The Satellite segment includes direct-to-home (DTH), called Star Choice, and satellite services. Star Choice is one of two DTH satellite operators licensed by the Canadian Radio-television and Telecommunications Commission.^[6] It provides digital audio and video programming subscriptions directly to homes and businesses. Beginning in 1997, Star Choice has grown to have 892,528 subscribers across Canada, broadcasting over 450 channels including 42 HD channels.^[6] The satellite services redistribute television and radio signals to cable providers via satellite and also provide mobile tracking and messaging services to almost 600 long-haul trucking companies. The two services use the same satellite infrastructure to make revenue from two distinct markets: the residential and the business market. The Satellite segment generated $729 million in revenue for the company in 2008.^[12]

The growth of Shaw's Cable segment's revenues has approximately tripled that of the Satellite segment's, but both have maintained consistent positive growth since 2006.^[12]

Within the Cable segment, television subscriptions make up close to 60% of the segment's total subscriptions, illustrating the growth potential in its other sectors.^[7]

Key Trends and Forces

The decline of industry regulation by the CRTC causes growing competition in Shaw's operating regions while stunting Shaw's expansion into others.

Shaw operates in a heavily regulated industry, which is governed by the Canadian Radio Television and Telecommunications Commission. The company relies on the CRTC for the renewal of licenses to continue operations while also hoping that the commission does not grant additional licenses to competitors that do not yet have them. For example, Shaw is one of only two licensed operators of DTH services in all of Canada (BCE is the other).^[14] The CRTC is beginning to deregulate the local telecommunications sector, relying on market forces to direct competition and achieve policy goals.^[15] As a result, the CRTC has granted forbearance to several competitors, including Telus (TU), Manitoba Telecom Service (MBT), and SaskTel, in a large portion of Shaw's operating territories so that they can compete more directly, which negatively affects Shaw's operations.^[16] Although Shaw is expanding its digital phone service into more territories, the CRTC's granting of forbearance to Shaw's competitors in these territories can stunt Shaw's growth in the digital phone sector.^[16]

Shaw's number of subscriptions is prone to seasonal fluctuations throughout the year.

Shaw is subject to seasonal fluctuations in its Cable TV and internet subscribers. Its fall season is generally the strongest with the most subscriptions, and this is often attributed to the return of families from vacations as well as the beginning of new television seasons.^[17] On the other hand, the summer season is usually the weakest with the fewest subscriptions as families take longer vacations or move to summer homes, causing them to temporarily disconnect their services.^[18] For Shaw, the fiscal year begins in September of the year prior, so that the quarters run September to November, December to February, March to May, and June to August. According to the basic cable subscription data for fiscal 2008 going into fiscal 2009, there were 8,138 new subscriptions in the first quarter of 2008, 6,524 new subscriptions in the second quarter, 2,495 in the third, 4,122 in the fourth, and finally 9,198 new subscriptions in the first quarter of fiscal 2009, illustrating the seasonality of subscription growth.^{[19][20][21][22][9]}

A combination of anti-trust litigation and low interest rates around 0.5% has promoted Shaw's aggressive acquisitions strategy, expanded the company's operational territories while growing its customer base.^[23]

In 2000, Shaw and Rogers Communications made a contract stating that Shaw would only provide services to Western Canada while Rogers would only provide services to Eastern Canada. However in July of 2009, Shaw expanded its cable television services into Eastern Canada through the purchase of Mountain Cablevision, based in Hamilton, Ontario. This has resulted in a lawsuit by competitor Rogers Communications, which argued that Shaw was breaking its nine-year-old contract stating that Rogers and Shaw would each provide services to only one half of Canada.^[24] Rogers has sued because it says that Mountain Cablevision is within its operating territory, but Rogers lost the suit after the judge ruled that there is not enough direct competition in the area and that such a contract would only lead to a monopoly in each half of the country. The acquisition of Mountain Cablevision has added 41,000 Television, 28,000 Internet, 27,000 phone subscribers to Shaw's customer base.^[24] As a result of the failed lawsuit, Shaw is now able to continue its acquisition strategy further east into Canada where Rogers primarily operates.

Also, due to the high capital requirements of the telecommunications industry, Shaw primarily uses long-term financing in its capital structure. Although some of Shaw's bank loans have floating interest rates, it periodically converts these loans to fixed-rate loans through public market debt issues.^[25] As of August 2008, 98% of Shaw's consolidated long-term debt had fixed interest rates, and with interest rates hovering around 0.5%, debt has not been cheaper since before 2000.^[25] From 2006 to 2009, interest rates have gone from 4.5% to 0.5%.^[23]

Since 2006, Shaw has acquired Campbell River Television Association, Grand Forks, Midway, Greenwood, Rock Creek and Christina Lake cable systems, Whistler Cable Television, Norcom Telecommunications, Saltspring Cablevision, and Pemberton Cable, all of which are spread out across British Columbia and Ontario.^[26] During this time period, Shaw has seen its subscribers increase by about 21% from 4.57 million in 2006 to 5.55 million in 2008.^[7]

Competition

Shaw competes with both regulated cable services and unregulated, illegal internet services that stream television to computers for free. Shaw's competitors offer many of the same services to both homes and businesses, with telephone, television, and internet offerings at the companies' cores. Therefore, the biggest differentiation comes from smaller specialized service offerings and the geographical regions in which the companies operate. Competitors include Telus (TU), Saskatchewan Telecommunications Holding Corp., Manitoba Telecom Service (MBT), Rogers Communications (RCI), and Bell Canada Enterprises.^[14]

Since Shaw primarily operates in Canada, it only directly competes with other companies operating in Canada. Shaw does own a US subsidiary named Shaw Business Solutions US Inc., but since beginning operations in 2002, it has not made any significant revenue.

• Telus (TU) - Telus (TU) provides Telecommunications services, including telephone, internet, and television services, each with multiple feature offerings. It also offers digital phone, and mobile internet and television services, such as mobile internet access through wireless connect cards, mobile radio, and on-the-go television. However, Telus (TU)'s TV products are limited to Alberta and British Columbia, and the company only has a large stake in local telephone services.^[15]
• Saskatchewan Telecommunications Holding Corporation - SaskTel is a Saskatchewan Crown Corporation, meaning that it is owned by the Saskatchewan government, is operated on behalf of the province's citizens to ensure high quality services at reasonable costs in the areas in which these services are not otherwise be provided, and it reports indirectly to the government's cabinet.^[27] SaskTel is the largest telecommunications provider in Saskatchewan and offers internet, television, telephone, cellular, and wireless services to its customers.^[28]
• Manitoba Telecom Service (MBT) - MTS caters to medium and large businesses by operating a national broadband Fiber Optics network that delivers internet, voice, and data communications services.^[29] It also provides wireless, high-speed internet, digital television, and land-line telephone services. Furthermore, MTS offers security and alarm monitoring services through its subsidiary, AAA Alarm Systems Ltd.^[29] Although the company is incorporated, it is still a Crown Corporation of Manitoba, operating primarily in Winnipeg and Manitoba.^[14]
• Bell Canada Enterprises, Inc. (BCE) - BCE is Canada's largest communications company (in terms of revenue) and offers land-line phone, wireless phone, wireless internet, cable television, and digital television services to both homes and businesses in Western Canada.^[30] The company planned to privatize in 2007, but was later forced to end the transaction after KPMG LLP decided not to provide a positive Solvency opinion of BCE.^[31]
• Rogers Communications (RCI) - Rogers provides wireless phone, data and internet, high-speed internet, cable and digital television, as well as digital video disc and video game sales and rentals. Also, it operates a retail chain of about 450 stores that sell home entertainment and wireless products.^[32] Finally, Rogers provides radio and television Broadcasting, and televised home shopping services. It operates over 50 radio stations and multiple television stations, including channels featuring sports, biographies, and technology.^[32]

References

1. ↑ ^{1.0 1.1 1.2} SJR 2008 40-F pg. 18  
2. ↑ ^{2.0 2.1 2.2 2.3} SJR 2008 Financial Statements pg. 6  
3. ↑ SJR 2008 Financial Statements pg. 34  
4. ↑ ^{4.0 4.1} SJR 2008 Financial Statements pg. 51  
5. ↑ ^{5.0 5.1 5.2} SJR 2009 3rd Quarter 2009 pg. 3  
6. ↑ ^{6.0 6.1 6.2} SJR 2008 40-F pg. 20  
7. ↑ ^{7.0 7.1 7.2} SJR 2008 40-F pg. 49  
8. ↑ Business Week: Shaw Communications Transactions
9. ↑ ^{9.0 9.1} SJR 2009 1st Quarter 2009 pg. 3  
10. ↑ SJR 2009 2nd Quarter 2009 pg. 4  
11. ↑ SJR 2008 40-F pg. 42  
12. ↑ ^{12.0 12.1 12.2 12.3 12.4} SJR 2008 40-F pg. 91  
13. ↑ ^{13.0 13.1} SJR 2008 40-F pg. 19  
14. ↑ ^{14.0 14.1 14.2} SJR 2008 40-F pg. 122  
15. ↑ ^{15.0 15.1} SJR 2008 40-F pg. 34  
16. ↑ ^{16.0 16.1} SJR 2008 40-F pg. 35  
17. ↑ SJR 2008 40-F pg. 128  
18. ↑ SJR 2008 40-F pg. 129  
19. ↑ SJR 2008 1st Quarter 2008 pg. 4  
20. ↑ SJR 2008 2nd Quarter 2008 pg. 4  
21. ↑ SJR 2008 3rd Quarter 2008 pg. 3  
22. ↑ SJR 2008 4th Quarter 2008 pg. 4  
23. ↑ ^{23.0 23.1} Bank of Canada: Canadian Interest Rates
24. ↑ ^{24.0 24.1} Bloomberg.com: Shaw Communications - Company News
25. ↑ ^{25.0 25.1} SJR 2008 40-F pg. 36  
26. ↑ Shaw Communications Inc.
27. ↑ Encyclopedia of Saskatchewan: Crown Corporation
28. ↑ 2008 Annual Report pg. 21  
29. ↑ ^{29.0 29.1} MBT.TO 2008 Annual Report pg. 13  
30. ↑ Yahoo! Finance: BCE Inc.
31. ↑ BCE 2008 Annual Report pg. 21  
32. ↑ ^{32.0 32.1} RCI 2008 Annual Report pg. 27  
33. ↑ ^{33.0 33.1 33.2 33.3 33.4 33.5} SJR 2008 40-F pg. 41  
34. ↑ ^{34.0 34.1 34.2 34.3 34.4 34.5} Yahoo! Finance: Income Statement for TELUS Corporation
35. ↑ ^{35.0 35.1 35.2 35.3 35.4 35.5} 2008 Annual Report pg. 51  
36. ↑ ^{36.0 36.1 36.2 36.3 36.4 36.5} MBT.TO 2008 Annual Report pg. 42  
37. ↑ ^{37.0 37.1 37.2 37.3 37.4 37.5} BCE 2008 Annual Report pg. 84  
38. ↑ ^{38.0 38.1 38.2 38.3 38.4 38.5} RCI 2008 Annual Report pg. 87