Shaw Communications Stock: Little Upside, Needs Rogers Deal (NYSE:SJR)

Shaw Communications Inc. (NYSE:SJR) recently released its latest earnings numbers, and the results were mixed as the company and its suitor Rogers Communications continue to fight for the proposed merger between the two companies to be allowed to go forward.

As for Shaw itself, its share price has been under steady decline until it agreed to a deal offered by Rogers to acquire the company in March 2021. At the time, the share price of Shaw jumped from a little over $17.00 per share to a 52-week high of $31.60 per share before pulling back to about $27.00 per share as I write.

CEO Bradley Shaw has stated he doesn’t see a viable path forward as a standalone company. Looking at CapEx and the accompanying results, I tend to think his statement is accurate; if the Rogers deal isn’t approved, I think the company is going to steadily and incrementally decline in the years ahead.

Final witnesses speak during hearing on Rogers, Shaw $26-billion proposed deal

Three regulatory agencies must approve the Rogers-Shaw deal in order for it to go forward, including the Competition Bureau, the CRTC, and Innovation, Science and Economic Development Canada.

If the deal is rejected, the share price of Shaw is going to collapse and there is little in the way of tailwinds that suggest it could recover in the future. At best, it could hold off the pace of decline until it finds a bottom, and from there tread water for years.

In this article, we’ll look at the recent numbers of Shaw and why its growth potential in the future is limited, or close to zero on its own.

Some of the numbers

Revenue in the fourth fiscal quarter was C$1.355 billion, down 1.5 percent from the C$1.377 billion in revenue from the fourth fiscal quarter of $2021. Full-year revenue for fiscal 2022 was C$5.45 billion, down 1.1 percent from full-year revenue of C$5.51 billion in fiscal 2021.

Net income in the reporting period was C$169 million, down 32.9 percent from the net income of C$252 million generated in the same reporting period of 2021. Net income for fiscal 2022 was C$764 million, a 22.5 percent decline from the net income from fiscal 2021 of C$986 million. Earnings per share was C$0.34, dropping from earnings per share of C$0.50 in the same quarter of 2021.

Adjusted EBITDA in the quarter was C$624 million, up 1.6 percent from the Adjusted EBITDA of C$614 million in the fourth fiscal quarter of 2021.

Free cash flow plummeted from C$227 million last year in the fourth fiscal quarter to C$70 million in the fourth fiscal quarter of 2022. Free cash flow for full-year fiscal 2022 was C$819 million, down C$154 million, or 15.8 percent year-over-year, primarily from an increase in CapEX and higher income taxes.

CapEX in the fourth fiscal quarter climbed to C$340 million, up C$48 million from the CapEX of C$292 million in the fourth fiscal quarter of 2021.

In looking at the numbers and CapEx, it’s apparent that even with significant spending the company is struggling just to break even, let alone grow. I think that’s the future for Shaw if the Rogers deal isn’t approved, with the likelihood it’ll slowly decline no matter how much the company spends.

In the event the Rogers-Shaw transaction hasn’t closed, the company received an extension from the TSE to hold its AGM as late as April 11, 2023.

Performance by segment

In the fourth fiscal quarter revenue growth in Consumer Internet, Wireless service and Business revenue was offset by declines in Wireless equipment and Wireline Video, Satellite and Phone revenue.

The Company added close to 52,900 new Wireless customers in the quarter, bringing full-year additions to approximately 160,000 new Wireless customers, resulting in an overall customer base of about 2.28 million.

ARPU in the reporting period was C$37.08, down 0.9 percent because of a decline in device subsidies. For the full year, ARPU was C$36.83, down 1.4 percent.

Wireless service revenue climbed 7.3 percent from ongoing subscriber growth, partially offset by the drop in ARPU.

Consumer Wireline RGU had losses of around 42,500, an improvement over the fourth fiscal quarter of 2021, with RGU additions of close to 4,700, along with fewer Video and Phone losses as a result of improved retention rates.

Fourth quarter Wireline revenue was down 2.4 percent year-over-year to C$1.03 billion and Wireline adjusted EBITDA fell 1.4 percent to C$501 million.

Fourth quarter Wireless revenue was up 1.2 percent to C$325 million and adjusted EBITDA of C$123 million jumped 16 percent in the same reporting period of 2021. For fiscal 2022, Wireless revenue grew 1.5 percent to C$1.29 billion and adjusted EBITDA of C$485 million increased 23.4 percent.

Wireless service revenue for the quarter was up 7.3 percent to C$250 million, and for the full fiscal year of 2022 it climbed 9.1 percent to C$972 million. The increase in revenue was attributed to growth in its subscriber base.

Wireless equipment revenue was down significantly in the reporting period, falling to C$75 million, a decline of 14.8 percent. Full-year revenue in the segment came in at C$319 million, down 16.3 percent year-over-year.

Wireline RGUs fell by about 40,400 in the reporting period, compared to a decline of about 45,400 in the fourth quarter of fiscal 2021. Business RGUs were up by approximately 2,100.

Fourth quarter Wireline revenue of C$1.03 billion was down 2.4 percent, while adjusted EBITDA of C$501 million fell 1.4 percent.

Consumer revenue of C$879 million dropped 3.4 percent from last year in the same quarter.

Business revenue was C$155 million in the fourth fiscal quarter, a gain of 4.0 percent year-over-year, led by Internet revenue growth and ongoing demand for its Smart suite of products.

As mentioned earlier, the company has been spending a lot of money and getting modest and mixed results, as shown above. Without the Rogers deal, I see this as the way the company is going to perform going forward, with an incremental decline continuing in the years ahead.

Conclusion

The Rogers deal has had its ups and downs since it made the offer for Shaw, and it appears that, one way or the other, it’s going to finally receive a final answer within the next couple of months.

As the numbers confirm, Shaw is going to struggle just to tread water in the years ahead if it doesn’t merge with Rogers, as CEO Bradley Shaw has stated.

While I think there’s more than a 50 percent chance the deal will go forward, it still wouldn’t surprise me if it was permanently shut down.

With that in mind, it’s not a good idea to take a position in Shaw at this time because it’s nothing more than a toss of the dice, and with its share price trading at elevated levels because of the anticipation the merger will be approved, it would crush any investor taking a position on that assumption, and the deal was shut down. Under that scenario, it could take years to return to its current price level, if it ever did.

On the other hand, if the merger is approved, it’s going to get a nice boost, which is likely to find support, although at this time I don’t see where that support is likely to be.

Current Shaw Communications shareholders may want to take some profits off the table in light of the possibility of the share price of the company plummeting if the merger isn’t allowed to go forward. Even if it goes through and the share price jumps, it’s better to remain disciplined in taking profits than to make decisions based upon FOMO.