SC Presentation

Equity Valuation FNCE 4409-001

Amber BusbyAdrian FosterLane Nodwell

Jade OsadchukJustin Tsang

Overview

1. Company Introduction2. Management & Shareholders3. Macroeconomic Outlook4. External & Internal Analysis5. Competitive Position 6. Risks & Evaluation7. Equity Valuation Methods8. Recommendation

Company Description

• Telecommunications Firm

• Founded in 1966

• Listed on TSX in 1983

• Consists of Multiple Divisions

Shareholders & Management Analysis

● JR Shaw’s Family Owns Majority of Class A Shares

● 16 Member Board of Directors

● In 2013: Changes to MGMT Structure

● Expanding Product Offering Growth

Strategy

Macroeconomic Outlook

According to BMO Nesbitt Burns:

• GDP & Overnight rate: Forecasted Increase

• Inflation: Forecasted Decrease

• Unemployment: Stay Relatively the Same

Porter’s Five Forces

SWOT Analysis

Strengths

• One of the largest communications companies in Canada

• Recognizable

Weaknesses

• High employee turnover• Lack of building customer loyalty

Opportunities

• More Canadians adopting smart devices• Increased demand for faster internet speed

Threats

• Lack of growth in population• Threat to market share

Competitive Position

Oligopoly - Medium Differentiated, Medium Focused

https://www.shaw.ca/store/http://www.telus.com/en/bc/index.jsp https://www.rogers.com/consumer/home

MATURE INDUSTRY

Historical Performance - Shaw

Dividends2010 - $ 0.462011 - $ 0.772012 - $ 1.012013 - $ 1.082014 - $ 1.062015 - $ 1.14CAGR Dividend 19.90 % the past 5 yrs

Shaw’s Average Return was 6.33%https://ca.finance.yahoo.com/q/bc?t=5y&s=SJR-B.TO&l=on&z=l

&q=l&c=T.TO%2C+&ql=1

Risks

• Loss of Pricing Power

• Substitution Risk

• Television Risk

• Technological Risk

• ISP Risk

• CRTC Risk

• Macroeconomic Risk

Risk Evaluation

COMPANY SYSTEMATICRISK (Beta)

TOTALRISK

ANNUALIZEDRETURN

SHAW 0.92 15.71 % 6.33 %

TELUS 0.63 13.37 % 16.64 %

ROGERS 0.44 16.24 % 12.34 %

TSX COMPOSITE 1.00 9.67 % 1.19 %

Price/ Earnings ValuationYear (Year End August 31) 2011 2012 2013 2014 2015 Historical AveragePrice $18.32 $17.35 $22.81 $25.64 $25.76EPS (Diluted) $1.02 $1.61 $1.63 $1.84 $1.79Price/Earnings 17.96 10.78 13.99 13.93 14.39 14.21Growth EPS 57.84% 1.24% 12.88% -2.72% 17.31%

2016 Forecasted EPS $2.10Shaw Communications November 2, 2015 Share Price ($) $27.14 Historical P/E 14.21Price ($) - Trailing P/E $25.44

Price ($) Leading P/E $29.84 

Industry Comparables P/EShaw Communications 14.21Rogers 19.38Telus 17.40

* All numbers have been taken from Bloomberg Database

Residual Income Valuation 2014 2015 2016 2017

Beginning BVPS (Bloomberg) 10.47 13.4 16.478 19.713

Net Income/Share (Diluted EPS) 1.84 1.940 2.046 2.158

Less: Dividends Per Share (D) 1.09 1.138 1.188 1.2410

Change in Retained Earnings (EPS-D) 2.93 3.078 3.235 3.399

Ending Book Value Per Share 13.4 16.478 19.713 23.112

Net Income / Share 1.84 1.940 2.046 2.158

Less: Per-Share Equity Charge 0.71196 0.911 1.121 1.340

Residual Income 1.12804 1.029 0.926 0.817

V2015 $15.85

FCFE Valuation

FCFE = NI + NCC – FCInv – WCInv + Net BorrowingFCFE (in millions) = 880 +809 -1904 -97 + 921 = $609FCFE1 =$587.33 FCFE2=$566.43FCFE3 =$546.28FCFE4 (Terminal Value)=$14,375.77

NPV @ 6.8% = $13, 396$13,396 / 471 Shares Outstanding

Price/ Share = $28.44

Recommendation - Sell

November 27, 2015 Share Price: $ 27.37

RESIDUAL INCOME40%

$15.85 

 FCFE40%

$28.44

P/E 20%

$29.84

TARGET PRICE

$23.69

Questions ??