Shaw Communications Remains Neutral

We maintain our long-term Neutral recommendation for Shaw Communications Inc. (SJR), which means the stock will perform mostly in line with the broader market. Shaw Communications is a leading cable and satellite MSO of Canada operating mainly in the western part of the country.

Shaw Communications has entered into agreements to acquire 100% of the over-the-air and specialty television businesses of Canwest Global Communications Corp. for approximately $2.0 billion. Canwest has restructured itself as a pure-play Canadian broadcaster. This transaction is expected to position Shaw Communications as one of the leading entertainment and communications companies in Canada with effective control of a premier broadcaster and content owner in the Canadian broadcasting industry.

We believe the recent venture in super-fast FTTH networks and on-demand online services will sustain Shaw Communications’ future growth. The company has already deployed high-speed DOCSIS 3.0 network in several western Canadian markets under the brand name of “Nitro Internet Service”. Furthermore, the company has decided to test its super fast network that will support Internet access speed of 1 Gbps. This next-generation FTTH network will be tested for multiple-dwelling units, single-family homes, as well as lucrative small & mid sized businesses.

However, an unexpected drop in basic cable subscribers in the first half of fiscal 2010 is a concern. Shaw Communications is facing severe challenges from the new entrants of Canadian cable TV market. Although the company has decided to finally launch wireless services in late 2011, we remain skeptical about its profitability as this sector is already over crowded. In a bid to improve service and prices through competition, the Canadian federal government has licensed four new operators beside the three existing giants e.g., BCE Inc. (BCE), TELUS Corp. (TU), and Rogers Communications Inc. (RCI).

SHAW COMMS-CL B (SJR): Free Stock Analysis Report

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