52 WEEK RANGE $25.53 - $31.93BETA 0.92TRAILING P/E 14.21XLEADING P/E 15.58XFORWARD PEG 7.46XINDICATED ANNUAL DIVIDEND

$1.19

DIVIDEND YIELD 4.33%TRAILING EPS $1.79

SHAW COMMUNICATIONS INC.

DATE: NOV 24, 2015 CURRENT PRICE: $27.37 RECOMMEDATION: SELL

TICKER SYMBOL: SJR.B TARGET PRICE: $23.69

RESIDUAL INCOME40%

$15.85

FCFE40%

$28.44

P/E 20%

$29.84

TARGET PRICE

$23.69

Highlights

Our recommendation has indicated a sell with a Target Price of $ 23.69: We arrived at our valuations by utilizing Residual Income, Free Cash Flow to Equity and Price to Earnings Valuation. The combined weighted average of all valuations indicated that Shaw Communications Inc. is currently overvalued.

Reasons for Decrease: Shaw is operating in a mature industry, and continues to increase its dividend in a difficult industry for growth currently. Residual Income was affected by the dividend payouts as revenue was not growing at the same rate as dividend growth, 3.74% versus 4.49%, respectively. The growth in this industry has been stunted by substitutes, and deteriorating macroeconomic forecast in Canada, Shaw’s primary market.

Strength and Weaknesses in Financials: Although Shaw has increased its Return on Assets from 5.58% in 2010 to 6.16% in 2015, the company has experienced weaknesses in other important metrics. There is a downward trend in Operating Profit to 29.69% in 2015 from 26.09% in 2010, which we predict will continue into the near-term. In addition Return on Equity has also shown weakness as it has fell 2.66% over the past five years and appears to continue its downtrend.

Risks: the main risks that Shaw Communications face is the loss in pricing power among cable and satellite services, threat of substitutions as more consumers move to streaming services, television regulatory risks, the various forms and uses of ISPs, and CRTC regulation. Shaw has reliance on other telecommunication and utility services and future operations can be affected by labor strikes, etc. Other risks include technology, political regulation, and economic expansion.  

Justin Tsang, Adrian Foster, Amber Busby, Lane Nodwell, Jade Osadchuk

Company DescriptionShaw Communications Inc. “SC” is a Canadian public media company that specializes in telecommunication services to customers primarily in Alberta, BC, Saskatchewan, Manitoba, and Northern Ontario ( Hoovers, 2015).

Shaw was originally incorporated as Capital Cable in 1966 in Sherwood Park, Alberta and since then has undergone substantial expansion. In the 1970s, Capital Cable originally provided cable to over 10,000 customers. In 1983, Capital Cable became Shaw Cablesystems Ltd. and initially listed on the TSX. In 1996, now under the name of Shaw Communications Inc., the company introduced Internet service to over 1.5 million customers (“About shaw”, 2015).

In 2005, SC expanded into home phone service in select major cities in Western Canada. In 2009 Shaw acquired Mountain Cablevision in Hamilton Ontario, and as a result, they became the largest cable company in Canada at the time, before they resold that region of business back to Rogers  (“Shaw Communications,” n.d.). Later in an attempt to diversify, SC bought Shaw Media in 2010 (Shaw Communications, 2015, About Shaw). In 2012 Shaw underwent corporate rebranding and introduced a new promotional campaign (“Shaw Communications,” n.d.). In 2013 Shaw acquired Enmax’s Envision subsidiary to expand its fiber optic network within Calgary (“Shaw Communications,” n.d.). However, recently Shaw’s growth has been impacted by the loss of subscribers to its video services, as a result of competition with phone companies, Netflix and websites such as YouTube. In the third fiscal quarter of 2015 SC lost 24,500 video customers, 2800 video satellite customers, and 21,000 telephone lines (Zacks.com, 2015, “Why Shaw Communications”).

SC consists of the following divisions:

Shaw Direct: Provides digital direct-to-home Satellite TV to over 900,000 customersShaw Media: Consists of 19 specialty Canadian TV channels including Global TVShaw Broadcast Services: Provides TV & radio signals to North American cable companiesShaw Business: Established Fibre Optic network that provides data networking, voice/video, and internet

services to businessesShaw Tracking: On-board computer technologies and wireless information service for the transportation,

mobile workforce, and logistics industries.ViaWest: Cloud based network system that enables companies to consolidate existing IT infrastructure with

new cloud based technologies .(“About Shaw”, 2015).

CompetitionThe telecommunications industry in Canada can be described as an oligopoly. Including SC there are only four major competitors with the other three being Rogers, Bell Communications, and Telus (“Inc competition”, 2015). In the cable TV market, Rogers is the industry leader with SC being second (“Communications Inc, 2015).

ShareholdersThe directors and executive officers own approximately 79.3% of the outstanding shares of Class A shares (“Annual Information, 2014, p. 15). SC trades under the ticker SJR.B on the Toronto Stock Exchange and as of November 1, 2015 Shaw’s share price has declined 18.47% year to date to CAD $25.56 (Google Finance, 2015, Shaw Communications Inc).

Management DescriptionThere are currently 16 directors that serve SC with the majority serving for a substantial time period. The executive chair/founder is Jim Shaw has been with the company since 1966. The current CEO is Bradley Shaw and has been the CEO since November 2010 while serving as a director since 1999 (“Annual Information, 2014, p. 13). The current president is Peter Bissonnette and he will be retiring in December 2015 (“New Managment”, 2013, para. 8). SC has not identified Bissonnette's successor.

In 2013, SC Announced changes to the senior management structure to improve efficiency and and “enhance customer centric” focus of the management structure  (“New Managment”, 2013, para. 7).

SC’s growth strategy is focused on expanding its product offerings (“Communications Inc”, 2015). This is proven by the fact that in 2014 SC acquired ViaWest INc. for $830 million (Pellegrini, 2014, para 2.). This is a clear move to enter the fast-growing Internet storage sector.Additionally, in November 2015, SC’s subsidiary ViaWest acquired American firm INetU for $162.5M USD, which is a move to push into the US data market (Dobby, 2015).

SC’s management is focused on staying ahead of market trends as shown by the launch of TSN GO application (“Shaw launches”, 2014, para. 1). In total, SC has 14 TV everywhere apps that allow customers to view on demand content everywhere (para. 6).

As a result, SC’s management is clearly focused on the changing nature of both the internet and TV industry. Management will be able to adapt to any future changes through combinations of acquisitions and/or product launches.

Industry & Competitive AnalysisSC’s Porter's 5 Forces

For a detailed analysis of Porter's 5 Forces (Appendix A)

SWOT AnalysisStrengthsSC is one of Canada’s largest communications company that offers telephone, internet and cable services, along with mass media services (Shaw Communications, 2015)

Largely recognized brand name in the Canadian market leading to customer loyalty (Shaw Communications, 2015).

WeaknessesSC suffers from high employee turnover, which negatively impacts a company and existing employees. With the continuous need for hiring and training new employees, it becomes easier to naturally veer away from the true mission that shaw strives to achieve.

SC offers all promotions and limited time offers to new customers only, this makes existing customers feel unappreciated

OpportunitiesAs of 2014, more and more Canadians are adopting smartphones and tablets. More specifically, in 2014 “over 62% of the population” owned either one of those devices which is an increase from 62% in 2012. Similarly, in 2014 over 39% of Canadians use tablets an increase from 26% in 2012 (“CRTC”, 2015).

Canadians are wanting faster download speeds with the percentage of people “with download speeds of 5 megabits per second” or greater increasing by 5% to a toal of 67% in 2013 (“CRTC”, 2015).

Threats

There’s no growth in the amount of Canadians subscribed to an Internet service provider as of 2012 79% of Canadians were compared to 80% of Canadians in 2013 (“CRTC”, 2015).

There is a threat to market share as smaller service providers are increasingly taking market share “from 9% in 2012 to 10% in 2013 (“CRTC”, 2015).

Note: For a more detailed SWOT Analysis (Appendix B)

Competitive PositionShaw Communications belongs to the telecommunications sector and is one of the major companies that are part of the oligopoly that make up the industry. Most of the companies have similar strategies and collude to avoid price wars. SC employs a medium differentiated and medium focused business strategy. They do not lead in differentiation nor cost leadership, or target a niche market. However, in the industry they are very competitive. After analyzing various metrics as seen by our ratio analysis, SC performed below Telus but well above Rogers in the industry.

Historical Performance

Stock Price and Dividend Behaviour

The annualized return for Shaw was 6.33% which was above the TSX at 1.19% but below Telus and Rogers which were 16.64% and 12.34% respectively (Yahoo Finance, 2015, Shaw Communications Inc.) (See Appendix C&D).

Shaw also had a large range of dividend returns from the period of 2008-2013 from $0.46 per share in 2010 to a high of $1.08 per share in 2013. Over the six year period ending in 2013 Shaw’s annual dividend has grown an average of 4.49% annually (Bloomberg, 2015, “Shaw Communications).

There are a few key news events that have impacted the price performance of Shaw’s common shares. In early December of 2013 it was announced that the president Peter Bissonette would postpone retirement until 2015 (Reuters, 2013). The share prices responded favorably and increased almost 25% in a linear trend until January of 2015. Recently, since the economic downturn at the end of 2014 in Canada and more importantly in resource rich Alberta, Shaw has returned a -3.5% in that time frame and continued its mid-term downward trend well into October of 2015. Whereas in comparison the TSX has also fallen 8.11% (Appendix E) (Yahoo Finance, 2015, Shaw Communications Inc.) It is evident that macroeconomic forces in Canada and Alberta have negatively affected Shaw but less than the market.

(Yahoo Finance, 2015, Shaw Communications Inc.)

Risk Evaluation

SC has a systematic risk as measured by a Beta of 0.92 which is significantly higher (more risky) than the industry standard as shown by Telus and Rogers that were 0.63 and 0.44 respectively. The industry has well below the average of systematic risk of the market, although Shaw is closer to market Beta, which would have a Beta of 1.0 (Yahoo Finance, 2015). The total risk of Shaw was 15.71% which was above the TSX Composite which was  9.67% and Telus at 13.37%, and below Rogers at 16.24%. The annualized return for Shaw was 6.33% which was above the TSX at 1.19% but below Telus and Rogers which were 16.64% and 12.34% respectively. (See Appendix Risk & Return). It appears that in the Industry Shaw takes the most amount of risk in comparison to their returns over the last five years. Whereas in that time period, the TSX who has the least amount of total risk returned the least amount of gains (Appendix C).

DUPONT Analysis

Shaw CommunicationsUsing a 5 year CAGR SC’s ROE has decreased -2.55% from 2010-2015. The most substantial contributing factor would be that the operating margin has decreased from 29.69 in 2010 to 26.09 in 2015. SC’s Tax Burden CAGR has decreased -0.39% over the same time period which would also contribute to the decline in ROE.

TelusUsing the same CAGR as above Telus’s ROE has increased 6.21% from 2009-2014. This is explained by the fact that Telus’s interest burden, operating margin, and asset turnover have all improved marginally over the 5 year span.

RogersUsing the same CAGR as above Rogers ROE has decreased -4.28% from 2009-2014. This can be explained by the fact that Roger’s interest burden, operating margin, and asset turnover have all decreased over the 5 year span.

To compare SC to the industry they have not performed as well as Telus over a similar time period but haven’t done as bad as Rogers

For a detailed DUPONT Analysis (Appendix F)

Key Ratio AnalysisCurrent RatioFrom 2014-2014 CR dropped from  0.95 to 0.52, which is a substantial decrease in liquidity. Over a 5 year time frame it has decreased only 2.16%. Telus’s CR has increased and Rogers CR has decreased over the same time period indicating there is no general trend. SC’s CR is not expected to make any drastic changes in the future.

Debt To EquitySC’s DTE has considerably decreased over the past 5 years from 1.43 in 2010 to 1.00 in 2015. Both Telus and SCs has increased over the same time period indicating no major industry trend. SC DTE is expected to decrease over the next few year.

Debt To AssetsSC’s DTA has remained the same over the past 5 years with a current value of 38.92. Both Telus and Rogers DTA has increased over the same time period indicating no major industry trend. SC DTA is make no major changes for the foreseeable future.

A/R TurnoverSC’s A/R Turnover has decreased nearly 10% over the past 5 years. Both SC’s and Telus A/R Turnover has declined over the same period indicating a general industry trend. SC A/R Turnover is expected to decrease for the foreseeable future.

Financial PerformanceSC’s EBITDA has decreased from $15.69M in 2010 to $5.62M in 2015, ranking them second amongst their peers. This is expected to further reduce in the foreseeable future as most key ratios has worsened alongside a grim DUPONT analysis.

Macroeconomic Outlook

According to BMO Nesbitt Burns the Canadian macroeconomic picture is going to improve. Real GDP is forecasted to increase 1.1% annually in 2015, followed by 2% in 2016, and 2.1% in 2017 (“Canadian economic”, 2015).

Inflation is forecasted to decrease 0.1% in 2015 followed by annual increases of 2.3% and 2.5% in 2015 and 2016 (“Canadian economic”, 2015).

The overnight rate is supposed to increase from a current value of 0.5% to 1.13% in 2017, which represents a minimal increase (“Canadian economic”, 2015).

Unemployment is forecasted to stay the same over the next 2 years at a value of 6.7% (“Canadian economic”, 2015).

Although the telecommunications industry is continuing to be a highly competitive and innovation industry in Canada, the GDP in this sector is only expected to expand by around 1% in the next year with industry revenues at a 2.3% increase (The Conference Board of Canada, 2015). Due to slower overall economic growth in Canada, consumers are experiencing less disposable income, therefore willing to pay less for telecommunications services.

Forecasted Performance

As stated above, the Canadian economy is not forecasted to recover until 2017.  As a result, we expect a softer outlook in performance for the telecommunications for the next 12 months.

SC has performed near the industry average, however Telus has historically (past five years) outperformed SC. Shaw will have to continue to provide household and business consumers with innovative and high quality services to maintain their competitive position in the mature and possibly threatening industry. While innovation and quality of service is important for Shaw, they must also take into account the current economic downturn consumers are experiencing and how it is affecting their disposable income and the amount of money they are willing to spend within the telecommunication sector

RisksLoss of Pricing PowerThere is a growing industry concern that cable and satellite services are quickly losing pricing power and may be a reflection of cord cutting (Watt, 2015). As more customers chose to go wireless this will have a negative impact on the performance of Shaw’s stock price in the future. Earlier this year Shaw has already lost 36,000 cable customers, 12,000 landline telephone users, and 1,800 Internet subscribers, which was much worse than what analysts had predicted. Shaw is losing most of its business to one of its biggest competitors TELUS as they seem to offer all the innovative technologies that Shaw has yet to adopt (Watt, 2015).

Substitution RiskThese numbers support the high risk relevance of threat in substitutions among the telecommunications industry as a whole. As customers are moving more towards streaming services, such as Netflix, which is also cheaper than cable and satellite, there is nothing stopping loyal customers from switching.

Television RiskMost investors have been looking to Shaw communications as a safe investment when considering to hedge against any wireless risks. However, risks involving television such as cable, satellites, and local television stations, which account for more than 61% of total revenue, are being overlooked (Ratner, 2014). Analysts have noted that satellite television and media segments are in a gradual and terminal decline. Shaw’s businesses involved in these sectors are at risk of being impacted by television regulatory risk in the future (Ratner, 2014). As a result of the mandate put into action by the Canadian Radio-television and Telecommunications Commission which allows customers to order programming services separately, Shaw has lost its competitive streak as they have chosen to only offer bundle packages. This may drastically reduce revenue on a per customer basis as its competitors such as TELUS and Videotron offer these services (Ratner, 2014).

Technological RiskThere are many uncertainties and risks that could impact the future profitability of Shaw Communications. These listed factors outline some of the major risks that could significantly impact the company's future operations. These risks include completion and technological change including change in regulatory risks. All cable and satellite providers operate in an open highly competitive market. Some of the current competitors Shaw is currently facing involve regulated entities which utilizes existing or new communications technologies, as well as any illegal forms of satellite or unregulated Internet, such as streaming. Furthermore, Shaw may face other obstacles from future developments in technology.

ISP RiskThere are various forms of ISPs (telephone dial up Internet access services) offered to home and businesses that compete against Shaw’s internet services. These include independent basic access service providers, telephone and wireless communications companies, and electricity transmission and distribution companies. Although not many Canadians still use ISP, recently CRTC has authorized third party ISPs to become a primary providers of high speed internet through the access of existing cable companies’ facilities (“Annual Report”, 2014, p. 36).

CRTC Regulation RiskThe CRTC at anytime can adjust regulation and/or policies in terms of broadcasting, radio, and any other media (p. 36). As a result, this would affect any licencing done by shaw, could increase the number of competitors, and increase any types of fees, etc (p. 36).

Macroeconomic RiskShaw communications has to rely on other telecommunication carriers and other utilities (p. 36). The daily business operations can be affected by labour strikes, work disruptions, bankruptcies, and any technical difficulties from the suppliers. This would have a direct impact on operating results (p. 36). Shaw’s Advertising revenues can be directly impacted by economic growth. Any negative changes in consumer spending will decrease the demand for SC’s advertising which will lead to lower revenues (p. 36).

ValuationPrice/Earnings The average growth in diluted EPS from 2011-2015 was 17.31%. The historical P/E from 2011-2015 was 14.21 x. Using a Trailing P/E we valued SC at $25.44. Using a Leading P/E we valued SC at $29.84. Upon analyzing the share price of $27.14 as of November 2, 2015 the company is overvalued using a trailing P/E of $25.44 and undervalued if earnings per share growth stays the same or is higher as a leading P/E was calculated at $29.84. Using industry comparables Rogers is trading at a P/E of 19.38 and Telus at a P/E multiple of 17.40 x. If Shaw has a comparable growth rate to Rogers and Telus, Shaw may be trading at a discount compared to them (Appendix H).

Residual IncomeBy using a 5 year CAGR from 2009-2013 per share forecasts for 2015-2017 were calculated for both EPS and Dividends per share. The former CAGR resulted in a growth of 5.45% and the latter resulted in a growth of 4.42%. As a result, a valuation of $15.85  was obtained (Appendix I).

FCFEGiven Shaw’s dividend payout ratio, the FCFE method was an appropriate valuation tool.  The dividend’s Shaw pays do not reflect their respective earnings per share and the dividend growth rate per year is consistent regardless of the earnings.  The FCFE valuation shows the free cash flow to equity, and by assuming a modest constant growth rate of 3%, the NPV of Shaw’s value including the terminal value at year 4 divided by the number of shares outstanding shows what the current stock price should be.FCFE = NI + NCC – FCInv – WCInv + Net BorrowingFCFE (in millions) = 880 +809 -1904 -97 + 921 = $609

FCFE1 $587.33

FCFE2 $566.43

FCFE3 $546.28

FCFE4 (Terminal Value) $14,375.77

NPV @ 6.8% = $13, 395.9313

$13,395.9313/ 471 Shares Outstanding

Price/ Share = $28.44(Appendix J)

References BMO Capital Markets. (2015). Canadian economic outlook. Retrieved from

http://www.bmonesbittburns.com/economics/forecast/ca/cdamodel.pdf

Bloomberg L.P. (2015) Shaw Communication Financial Statements.  Retrieved Nov 17, 2015 from Bloomberg database.

Bloomberg L.P. (2015) Shaw Communication Ratios. Retrieved Nov 17, 2015 from Bloomberg database.

Business Insights. (2015). CRTC brings out 2014 report on the state of the canadian telecomunications industry. Retreived from http://bi.galegroup.com/essentials/article/GALE%7CA384966646?u=mtroyalc&sid=summon&userGroup=mtroyalc

Dobby, C. (2015, November 17). Shaw subsidiary to acquire INetU in push into U.S. data market. Retrieved November 20, 2015, from http://www.theglobeandmail.com/report-on-business/shaw-subsidiary-to-acquire-inetu-in-push-into-us-data-market/article27298991/

Google . (2015). Google Finance - Shaw Communications. Retrieved November 1, 2015, from https://www.google.ca/finance?q=TSE%3ASJR.B&hl=en&gl=ca&ei=-nMdVrGBJImziALtponYBA

Gu, W., & Lafrance, A. (2015). Productivity growth in the canadian broadcasting and telecommunications industry: evidence from micro data. Refrieved from http://library.mtroyal.ca:2052/lib/mtroyal/reader.action?docID=10841040

Hoovers. (2015). Shaw communications inc. Retrieved from http://cobrands.hoovers.com/company/Shaw_Communications_Inc/hhtchi-1-1NJHW5.html

Hoovers. (2015). Shaw communications inc competition. Retrieved from http://www.hoovers.com/company-information/cs/competition.Shaw_Communications_Inc.58762f823b363f43.html

Krashinsky, S. & Marlow, Iain. (2011, June 4). Brad shaw: The (new) cable guy. The Globe and Mail. Retrieved from  http://www.theglobeandmail.com/globe-investor/brad-shaw-the-new-cable-guy/article583936/?page=all

Masse, Martin. (2015) State of Compeition in Canadian Telecommunications Industry.  Retrieved October 14, 2015 from http://www.iedm.org/files/cahier0215_en.pdf

Pellegrini, C. (2014). Shaw commnications to buy vaiwest for $830 million. Retrieved October 26, 2015, from http://www.bloomberg.com/news/articles/2014-07-31/shaw-communications-agrees-to-buy-viawest-in-1-2-billion-deal

Ratner, J. (2014). Shaw Communications Inc not without risks. Retrieved October 17, 2015 from http://business.financialpost.com/investing/trading-desk/shaw-communications-inc-not-without-risks

Reuters. (2013, December 2). Shaw communications inc. announces new management structure. Reuters. Retrieved from http://www.reuters.com/finance/stocks/SJRb.TO/key-developments/article/2879954#WfA68mtzPLTbPzov.97

Shaw communications announces new management structure. (2013). MENA Report, Retrieved from http://search.proquest.com/docview/1464823897?accountid=1343

Shaw Communications. (2015). About Shaw. Retrieved from http://www.shaw.ca/Corporate/About-Shaw/Shaw-Companies/

Shaw Communications. (2014). Shaw communications: annual report 2014. Retrieved from the SEDAR database.

Shaw Communications. (2014). Annual information form. Retrieved from the SEDAR database.

Shaw Communications. (2015). Senior Leadership. Retrieved November 13, 2015, from http://www.shaw.ca/Corporate/Investors/Senior-Leadership/

Shaw Communications. (2014). Shaw launches tsn go. Retrieved Nov 1, 2015, from http://newsroom.shaw.ca/materialDetail.aspx?MaterialID=6442451559

Shaw communications. (n.d.). In Wikipedia. Retrieved November 13, 2015, from https://en.wikipedia.org/wiki/Shaw_Communications

The Conference Board of Canada. (2015). Growth in Canada’s telecommunications restrained by affordability. Retrieved November 21, 2015, from http://www.conferenceboard.ca/press/newsrelease/15-07-09/growth_in_canada_s_telecommunications_restrained_by_affordability.aspx

Yahoo Finance. (2015). Rogers Communications Inc. Retrieved Nov 17,2015, from https://ca.finance.yahoo.com/q?s=RCI-B.TO&ql=0

Yahoo Finance. (2015). Shaw Communications Inc. Retrieved Nov 17, 2015, from https://ca.finance.yahoo.com/q/hp?s=SJR

Yahoo Finance. (2013). Telus Corp. Retrieved Nov 17, 2015, from https://ca.finance.yahoo.com/q?s=T.TO&ql=0

Watt, D. (2015). Shaw Communications Inc.’s Disappointing Results Suggest Trouble Ahead. Retrieved October 18, 2015 from http://www.fool.ca/2015/04/16/shaw-communications-inc-s-disappointing-results-suggest-trouble-ahead/

Zacks.com. (2015, September 29). Why shaw communications (SJR) slid to a 52-week low. Nasdaq. Retrieved from http://www.nasdaq.com/article/why-shaw-communications-sjr-slid-to-a-52-week-low-cm525356

Industry Analysis & Competitive Analysis

Porter’s Five Forces

Threat of Entry - Low High barriers of entry: Limited amounts of licences exist and telecommunications requires substantial

capital expenditure (Gu & Lafrance, 2014. pg. 8) High amount of capital required to start: Cost of infrastructure Government Regulation: CRTC regulated (Ineligibility of Non-Canadians)

Threat of Rivalry - Medium Companies with significant market share have a collusive pricing strategy rather than a competitive one Low customer loyalty, customers switch back and forth between competitors constantly Products not differentiated, products are not very different from competitors and provide similar service Industry dominated by 4 companies (Bell, Rogers, Telus, Shaw), who have most of the market share,

and are similar in size

Threat of Substitutes - High Streaming services entering into the market (Netflix, Apple TV, Amazon Prime) Low cost of switching, consumers are able to cancel their service right away Trend is heading towards having streaming services and cancelling cable

Threat of Suppliers - Low   Low supplier power No threat of forward integration from suppliers

Shaw would be the supplier other than purchasing materials to create infrastructure (cables/fiber optics) Once infrastructure is completed, there is little to no dependency on raw materials other than

maintenance Suppliers do not hold a scarce resource Cost of switching raw materials are low

Threat of Buyers - Medium Buyers are the end consumer, there will be no threat of backward integration Switching costs are low for buyers, they are able to jump from provider to provider with relative ease Streaming services becoming a threat as a substitute but only in one of Shaw’s business streams Buyers are price sensitive but pricing strategies of all competing firms are very similar

SWOT Analysis

Strengths

One of Canada’s largest communications company that offers telephone, internet and cable services, along with mass media services (Shaw Communications, 2015)

Largely recognized brand name in the Canadian market leading to customer loyalty (Shaw Communications, 2015).

Offers households and business' variety of bundles for internet, cable and telephone, including student discounts (Shaw Communications, 2015).

Has a competitive advantage against its competitors through the use of economies of scale which allows them to obtain a cost advantage due to size (Shaw Communications, 2015).

Shaw direct provides its customers with direct to home satellite programming to more than 900,000 subscribers

Offers customers free installation for any online orders

Through Shaw's implementation of superior technology it allows them to better assist their customers in comparison to their competitors which also adds value to their organization.

Weaknesses

Suffers from high employee turnover, which negatively impacts a company and existing employees. With the continuous need for hiring and training new employees, it becomes easier to naturally veer away from the true mission that shaw strives to achieve.

Shaw offers all promotions and limited time offers to new customers only, this makes existing customers feel unappreciated

Goods and services within the company's internal control are not efficiently utilized

Customer service complaints have increased among users of Canadian cable, wireless and Internet users, Shaw Communications was ranked second worst for customer satisfaction among five TV operators throughout western Canada.

Opportunities

As of 2014, more and more canadians are adopting smartphones and tablets. More specifically, in 2014 “over 62% of the population” owned either one of those devices which is an increase from 62% in 2012. Similarly, in 2014 over 39% of Canadians use tablets an increase from 26% in 2012 (“CRTC”, 2015).

Canadians are wanting faster download speeds with the percentage of people “with download speeds of 5 megabits per second” or greater increasing by 5% to a toal of 67% in 2013 (“CRTC”, 2015).

Canadians continue to be among biggest consumers of telecommunication services in the world (Masse, 2015)

Potential to expand into the international market

Threats

There’s no growth in the amount of Canadians subscribed to an Internet service provider as of 2012 79% of Canadians were compared to 80% of Canadians in 2013 (“CRTC”, 2015).

There is a threat to market share as smaller service providers are increasingly taking market share “from 9% in 2012 to 10% in 2013 (“CRTC”, 2015).

Due to high use of cellular phones, households are no longer using home telephone services

Shaw has not been established in cellular services, cellular companies could take over cable systems

Changes to government rules and regulations

Not all Shaw services are available in every region

Valuation

Year EPS (Basic) DPS P/O Ratio

2014 1.84 0.70 0.38

2013 1.64 0.67 0.41

2012 1.62 0.68 0.42

2011 1.23 0.77 0.63

2010 1.23 0.86 0.70

2009 1.25 0.82 0.66

2008 1.56 0.70 0.45

Shaw Communications Residual Income

2014 2015 2016 2017

Beginning BVPS (Bloomberg) 10.47 13.4 16.478 19.713

Net Income/Share (Diluted EPS) 1.84 1.940 2.046 2.158

Less: Dividends Per Share (D) 1.09 1.138 1.188 1.2410

Change in Retained Earnings (EPS-D) 2.93 3.078 3.235 3.399

Ending Book Value Per Share 13.4 16.478

19.713 23.112

Net Income / Share 1.84 1.940 2.046 2.158

Less: Per-Share Equity Charge 0.71196 0.911 1.121 1.340

Residual Income 1.12804 1.029 0.926 0.817

V2015 $15.85

Notes: EPS & Dividend Per Share Forecast was completed by a 5 year CAGR from 2010-2014All Information was taken from Bloomberg.

EPS: 7.97% Dividends/Share: 5.5%

Price/Earnings Valuation

Year (Year End August 31) 2011 2012 2013 2014 2015 Historical Average

Price $18.32 $17.35 $22.81 $25.64 $25.76

EPS (Diluted) $1.02 $1.61 $1.63 $1.84 $1.79

Price/Earnings 17.96 10.78 13.99 13.93 14.39 14.21

Growth EPS 57.84% 1.24% 12.88%

-2.72%

17.31%

2016 Forecasted EPS $2.10

Shaw Communications November 2, 2015 Share Price ($)

$27.14

Historical P/E 14.21

Price ($) - Trailing P/E $25.44

Price ($) Leading P/E $29.84

Industry Comparables P/E

Shaw Communications 14.21

Rogers 19.38

Telus 17.40