Shaw Communications Down On Competition, Cost Woes

On Jun 16, 2016, Zacks Investment Research downgraded Canadian cable TV behemoth Shaw Communications, Inc. (NYSE:SJR) to a Zacks Rank #4 (Sell). Shaw Communications has been persistently losing video cable and video satellite customers owing to rising competition.

Financial Position

Considerable debt, escalating capital expenditure and a deteriorating cash position may continue to be headwinds, going forward. At the end of second-quarter fiscal 2016, Shaw Communications had cash of $256.9 million, compared with $304.6 million at the end of fiscal 2015. Free cash flow was around $85.6 million, down 29.6% year over year. Meanwhile, total outstanding debt was $4,288.7 million, while the debt-to-capitalization ratio stood at 0.49, compared with 0.47 at the end of fiscal 2015.

WIND Mobile Acquisition

Recently, Shaw Communications has ventured into the Canadian wireless market with the acquisition of 100% interest in Mid-Bowline Group Corp., the parent company of WIND Mobile Corp., for an enterprise value of approximately C$1.6 billion (around $1.16 billion). With WIND Mobile in its kitty, we believe that Shaw Communications will be in a position to offer quad-play wireline telephony, high-speed Internet, video and wireless services similar to those offered by other large telecom operators in Canada. However, the Canadian wireless market is predominantly controlled by three big players – Rogers Communications Inc. (NYSE:RCI) , TELUS Corp (NYSE:TU) and BCE Inc (TO:BCE) . Together, these three firms control around 90% of the total market. Despite the fact that WIND Mobile is the fourth-largest wireless operator, its current scale of operations is considerably behind the three wireless giants.

High Costs

Rolling out new brands and advertising promotions are likely to push expenses, going ahead. The company also expects additional network fees in the forthcoming quarters. These combined costs could hurt margins, going forward.