Wind faces short-term turbulence, long-term opportunity: Canaccord

Canaccord Genuity analyst Aravinda Galappatthige said in a research note Tuesday that Shaw Communications Inc.’s Wind faces “volatility and uncertainty over the short run,” though it also has a “genuine and sizable long-term opportunity.” However, in notes issued ahead of telecoms’ quarterly reports, which will be released later this month, both Galappatthige and analyst Drew McReynolds of RBC Capital Markets said any impact on industry competition from Wind won’t be visible until next year. Galappatthige said “there is a high probability that Wind goes through a good degree of turbulence before it reaches ‘cruising altitude’,” citing challenges like its LTE rollout, problems with customer service, and issues around integrating with Shaw. Currently, Wind’s subscriber share in Ontario is about 6.5 per cent, and three per cent in B.C. and Alberta, Galappatthige estimated. The company is more likely to be more aggressive in growing its subscribers in the West then Ontario, he said, noting that “in the West there is considerable room for an initial burst of subscriber growth.” If Wind gains a 10 per cent market share in Ontario and the West, it could reach $300 million in earnings before interest, taxes, depreciation and amortization (EBITDA), compared to its current $65 million, Galappatthige said. The company has “a path” towards a 10 per cent share within about five years “with an effective but rational strategy,” he added. His positivity about the long-term outlook for Wind echoed that of Scotia Capital’s Jeff Fan, who wrote in a May research note that Shaw “provides the best long-term growth potential relative to its large cap Canadian peers driven by growth.” Whether Wind disrupts the market or whether it does well financially are two separate questions, Galappatthige said, noting that the “two are not as correlated as some may believe. Wind may well under-perform Street expectations from a financial perspective but still remain disruptive for a sustained period of time.” That might not happen for some time, according to Galappatthige. He predicted the incumbents are unlikely to feel any operational impact from Wind until mid-2017, and that the full bundling of Shaw’s products with Wind could take as long as a year. McReynolds also said Tuesday that while Wind’s acquisition “adds an element of uncertainty to the longer-term growth outlook for wireless, we expect little change to the competitive environment in 2016.” However, in the short term, he expected Wind to have a good third quarter. “Over the past three months, we have frequently flagged Shaw-WIND as the carrier with the heaviest promotional positioning, which we believe should bode well for wireless results” in the upcoming quarter. Shaw is due to report its quarterly earnings on July 15. It will be the first quarterly report for Wind since the company was bought out from VimpelCom Ltd. in 2014. Galappatthige said he doesn’t “believe that Shaw will realistically be in a position to effectively compete for wireless customers until it improves its network quality and customer services/process. There is little sense in aggressively attacking the market before addressing these issues, given the risk of damage to the WIND brand and potential harm to the 'premium' Shaw brand on the wireline side.” While the launch of its LTE network is forecast for 2017, that may be delayed, given that “network equipment and handsets are not yet commercially available” for AWS-3 spectrum, which Wind purchased in 2015. Shaw could also integrate its WiFi network with its wireless offerings, something the company declined to offer details on earlier this year. “Current reviews of Shaw’s Wi-Fi network quality indicate it is notably superior to free public Wi-Fi networks,” Galappatthige said. “If successful, Shaw could pose a credible threat with an ‘own the home’ strategy, anchored by its wireline Internet product, bundled with wireless and Wi-Fi,” he said. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Ahmad Hathout at ahathout@thewirereport.ca

Wind faces short-term turbulence, long-term opportunity: Canaccord

News | July 5, 2016

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