Shaw Comm Markets Maturing

We assumed coverage of Shaw Communications (SJR - Analyst Report) in February 2007. We think SJR can grow EPS at a CAGR of at least 15%-17% over the next five years, driven by the acquisition of cable systems, the rollout of digital telephony and the country’s fastest Internet service, coupled with continuing share buybacks.

Moreover, continued share buybacks, funded by free cash flow and coupled with the increased dividend, will boost total shareholder return. However, a mature market for high-speed Internet service and the uncertainty surrounding the sustainability of the positive trends in the Star Choice business, contribute to a high risk/reward ratio in the stock at its current high valuation multiples.

In the coming years, the company will strategically focus on its digital phone operations and its broadband business with 69% Internet penetration of basic cable (up from 65.2% at August 31, 2007), and will evaluate wireless possibilities. Further, the company is actively engaged in making strategic acquisitions.

The company is also actively managing its capital. In 3Q08, the company used free cash flow (up 10.4% to $309.3 million for the first nine months of 2008) to raise its dividend by 11%, and since August 31, 2007, the company has reduced its long-term debt by C$433.9 million. We maintain our Hold rating on the shares.

Sumit Singh contributed to the report.

Read the full analyst report on SJR