SJR.PR.A & SJR.PR.B : S&P Says ‘Outlook Positive’

Standard and Poor’s has announced:

  • Growing wireless operations, improving wireline profitability, and noncore asset sales have enabled Calgary-based Shaw Communications Inc. to exit fiscal 2019 with S&P Global Ratings’ adjusted debt-to-EBITDA ratio of 2x.
  • We believe Shaw can sustain leverage below 2.5x (post IFRS-16) over the next two years even assuming wireless spectrum investments and higher cash dividend outflow.
  • As a result, S&P Global Ratings revised its outlook on Shaw to positive from stable. At the same time, S&P Global Ratings affirmed all of its ratings on Shaw, including its ‘BBB-‘ issuer credit and unsecured issue-level ratings.
  • The positive outlook reflects our view that a more balanced competitive environment in wireline combined with disciplined growth in wireless can help sustain Shaw’s improved financial profile over the near term despite higher competition in wireless and generally rising regulatory risks.

Growth in Shaw’s wireless subscriber base and improving profitability in wireline will support EBITDA growth and margins. In the past few years, Shaw has taken major steps to establish itself as a fourth national player in the Canadian wireless market. Concrete steps the company has taken to expand its wireless operations include: adding 266,000 net subscribers to expand its subscriber base to 1.7 million (about 10% market share of covered population), launching its Big Gig Unlimited and Absolute Zero Plans in the fourth quarter to compete against incumbents, expanding its network to cover 50% of Canadians (18.5 million people), deploying 700 MHz spectrum, and doubling its retail distribution network. A network quality closer to that of peers, a growing subscription base, and a significantly lower-priced offering should continue to support the company’s wireless growth.

We could raise the rating within the next 12 months if the company continues to profitably expand its wireless business and maintain stable wireline EBITDA such that EBITDA shows growth year-over-year and S&P Global Ratings’ adjusted EBITDA margins remain strong (over 40%), reflecting the success of Shaw’s various strategies and arguably benign regulatory environment. Also taking into consideration spectrum auctions and shareholder returns, we expect Shaw’s peak leverage to remain below 2.75x in the future.

We could stabilize the outlook if we view the competitive and regulatory risks to be detrimental to Shaw’s operations (either wireless or wireline) such that there is increasing risk that leverage will ultimately prove to be higher than 2.75x. We will also have lower tolerance if Shaw pursues aggressive shareholder returns (higher than our base-case scenario) at the expense of business growth or balance-sheet strength and this will likely be reflected by a lower tolerance if leverage metrics exceed 2.75x.

Affected issues are SJR.PR.A and SJR.PR.B.

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