We upgrade our recommendation to Outperform on
Shaw Communications Inc.
) mainly based on the company's improving EBITDA margin and free
cash flow due to the discontinuation of promotional activities. The
problem for Shaw Communications was, whenever the company tried to
reduce its promotional activities it lost a large amount of pricier
subscribers. On the other hand, higher promotional activities are
impairing its bottom line and free cash flow. It seems management
has finally found out an appropriate trade-off between these two
Moreover, Shaw Communications launched "Shaw Go", an innovative
TV Everywhere service, which will be available on
) developed iPad 2 and iPhone 5. Initially, this service will only
offer the company's Movie Central applications. However, in the
near future, the company will offer streaming live TV, on-demand
content and several family-focused programs through Shaw Go.
In the third quarter of fiscal 2012, Shaw Communications
performed impressively with respect to net customer additions on
several fronts. The company added 246 digital TV customers. Digital
TV penetration rate is now 6.1% of basic cable TV. Furthermore,
Digital phone lines were 1,339,559, reflecting a year-over-year net
addition of 29,142. Quarterly EBITDA margin was 47.5% compared with
43.8% in the prior-year quarter.
Shaw Communications is gradually expanding its Wi-Fi network.
The company's improved user interface called "DreamGallery" is
currently going through trial runs in two markets. This innovative
software is backward compatible with the company's installed
700,000 set top boxes. Additionally, the acquisition of Canwest
placed the company as a major content and distribution player in
the Canadian Cable TV industry.
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