Jan 3, 2023
RBC cuts Shaw and Quebecor stock ratings
, BNN Bloomberg
Fed. court of appeal to stay Rogers-Shaw merger deal
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RBC Capital Markets has downgraded its recommendation for shares of Shaw Communications Inc. and Quebecor Inc. after the Competition Tribunal approved Rogers Communication Inc.’s $20-billion takeover of the Calgary-based telecom operator.
While the Tribunal determined last week that the deal was not likely to result in higher prices for wireless customers, the Competition Bureau has been granted an emergency stay on the verdict by the Federal Court of Appeal. This pause comes as Rogers has stated it intends to close the deal on Jan. 31.
While the Tribunal determined last week that the deal was not likely to result in higher prices for wireless customers, the Competition Bureau has been granted an emergency stay on the verdict by the Federal Court of Appeal. This pause comes as Rogers has stated it intends to close the deal on Jan. 31.
Despite the stay, RBC analysts wrote in a note to clients on Tuesday that they believe the probability of the deal going through remains high.
The downgrades come after both Shaw and Quebecor shares rallied during the Rogers-Shaw court hearings over the past two months, and the analysts stated that investors may want to seek growth elsewhere in the Canadian telecommunications sector.
Shaw Communications Inc.
RBC downgraded shares of Shaw to a “sector perform” rating (the equivalent to a hold) from an “outperform” rating (the equivalent to a buy) while keeping its 12-month price target of $40.50 per share unchanged, equivalent to the tender offer Rogers has made for the telecom operator.
“Our investment thesis on Shaw has been to ‘ride it out to the very end’ given what has, at most times since the proposed acquisition by Rogers was announced March 2021, looked an attractive annualized total return to the $40.50 bid price,” wrote RBC Analyst Drew McReynolds.
Quebecor Inc.
Shares of Quebecor were also downgraded to a “sector perform” from an “outperform” while the 12-month price target was lowered to $32 from $34.
McReynolds stated that while Quebecor’s acquisition of Freedom Mobile should increase the telecommunication giants success in the wireless business outside of the province of Quebec, there will be upfront costs for integration.
“While following the proposed acquisition of Freedom Mobile we see a more range bound stock in the low-$30s given likely upfront investment as Freedom Mobile is integrated, we continue to believe this cost-effective path has minimized downside risk while providing investors with attractive option value longer-term around successful national expansion,” he said.
Rogers Communications Inc.
McReynolds also lowered his forecast for Rogers’ 2023 revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA), though he maintained a sector perform on the stock and left his 12-month price target of $69 unchanged.
He explained the change in the forecast comes from Rogers need to adjust for Shaw’s sale of Freedom Mobile.
“Assuming Rogers successfully closes the Shaw acquisition our near-term focus will be 'fine tuning' the $1B in targeted cost synergies, the combined Rogers-Shaw capex trajectory and sizing up Quebecor’s competitive impact as the fourth national wireless operator,” he wrote.
Despite the cut to projected revenue, McReynolds still believes that Rogers is trading at a discount compared to Canada’s other telecom giants. In the long run, he noted that there is potential for multi-year upside in Rogers shares.
