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Shaw Communication Remains Neutral

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We continue to maintain Neutral recommendation on Shaw Communications Inc. (SJR), as the company reported impressive results in the last quarter. The company added 246 digital TV customers. Digital TV penetration rate is now 6.1% of basic cable TV. Furthermore, Digital phone lines were 1,339,559, reflecting a year-over-year net addition of 29,142. Quarterly EBITDA margin was 47.5% compared with 43.8% in the prior-year quarter.

Shaw Communications deployed high-speed DOCSIS 3.0 network in several western Canadian markets under the brand name of “Nitro Internet Service”. This technology offers 100 Mbps download speed. Nitro Internet Service is the fastest Internet service available in Canada. The company launched Shaw Gateway service that offers more than 1,200 HD Video-on-Demand titles while enabling clients to link pictures and content from their computer to their television. The company launched its Personal Video Recorder service, enabling its viewers to record popular shows with 500 GB capacity as well as support full HD video delivery.

So, we believe that the launch of such advanced services will continue to drive customer additions in the upcoming quarters. Moreover, Shaw Communications is gradually expanding its Wi-Fi network, which will further act as a catalyst for subscriber growth.

On the flip side, dampness in the Canadian advertisement market has forced the company to lower its previous outlook for fiscal 2012. Higher promotional activities, however, are adversely impacting its bottom line and free cash flow.

Shaw Communications offers triple-play cable TV and satellite TV, Internet, and wireline phone services, whereas its main competitor Telus Corp. (TU) offers Cable TV, Internet, wireline, and wireless services. Telus shares a national wireless network with Bell Canada, a division of BCE Inc. (BCE). Its popular Optik TV, offering IPTV services, is quickly eroding Shaw’s market share. In addition, Shaw Communications lacks a major competitive weapon, which is the wireless service.

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