There’s a great children’s book my mother used to read to me as a kid called The Little Engine That Could. The story is about a small engine that, despite great odds, wills itself over the mountain while repeating the mantra, “I think I can. I think I can.”
Well, it appears that Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) is like that little blue engine, repeating its mantra on its journey to accumulating market share in the very competitive wireless business.
Why is Shaw Communications different?
Unlike the other major telecommunications companies in Canada, Shaw is very late to the wireless game. Shaw made its first big move in March 2016 when it bought Wind Mobile Corp. for $1.6 billion, adding 940,000 wireless customers across Ontario, Alberta, and British Columbia.
While Shaw was adding subscribers, it was also selling other assets. It sold its media business to Corus Entertainment Inc. for $2.65 billion and now holds 39% of that entity. And it also sold its data centre business for $2.3 billion after acquiring it originally three years earlier for $1 billion.
But these deals were necessary, because Shaw is going to have to get very competitive if it’s going to acquire users from the other companies — and competition costs money. We’ve already seen Shaw pay $400 million to Quebecor Inc. for its 700 MHz and 2,500 MHz frequencies.
How has the strategy worked so far?
Shaw is moving up the mountain; that’s for sure.
In Q4 2017, Shaw added 41,000 wireless subscribers. This is a good sign because last quarter, it only added 20,000 wireless subscribers. In fiscal 2017 as a whole, it added 103,000 subscribers, which is a great first full year as a wireless operator. If this sort of momentum can continue, Shaw might actually be in a position to have solid market share over the next few years.
Shaw as a whole is also doing quite well. Revenue was up 2.6% to $1.24 billion, and net income was up from $154 million last year to $481 million this year. Diluted earnings were share were also up more than three times from $0.31 to $0.97.
That doesn’t mean Shaw is an immediate buy, though. The Big Three telecommunications companies in Canada have a strong foothold and well-built infrastructure that allow them to provide great service to their customers. Shaw is in fourth place and needs to play serious catch-up.
The problem with this is that it’ll need to get aggressive with its strategy by offering incredibly competitive rates. Whereas the competition can slowly increase pricing and eek out stronger profits, Shaw may operate on razor-thin margins.
My final thoughts
I believe Shaw can gain a strong position in the wireless business, and we’re already seeing that. And thanks to it having other business lines, it can afford to invest heavily in growing its wireless offerings. With a current dividend yield at 4.19%, this might be a solid way to invest in The Little Engine That Could. It’s no guarantee, but with risk comes great opportunity.