Shaw has made significant efforts to improve its wireless network and is now bundling wireless with wireline service to customers in its cable footprint, enabling it offer even better value and enhancing service when offloaded onto its Wi-Fi network. Between the ends of fiscal years 2016 and 2020, Shaw more than doubled its postpaid wireless subscriber base, increased average billings per user (ABPU) by 20%, and expanded its wireless EBITDA margin by 900 basis points. The firm continues to invest heavily to improve its wireless network, and we think the firm is a legitimate competitor for new wireless customers and will continue seeing wireless results trend upwards.
The stronger competition has caused Shaw to lose customers and market share over the last several years. The losses are attributable to television and voice customers, which face secular challenges for all competitors, but even Internet customer growth has been anemic (up 2% since 2017, including customer losses in 2021).
Financial Strength
Shaw is currently in a good financial positionAt the end of fiscal 2020, Shaw had over CAD 700 million in cash and CAD 4.5 billion in long-term debt, which represented 1.6 times net debt to adjusted EBITDA. Shaw’s coverage ratio (adjusted EBITDA to interest expense) ended 2020 at 8.7, and the company has CAD 1.5 billion available on a revolving credit facility. Shaw has no long-term debt maturing until the end of 2023. Its debt covenants require its leverage ratio to stay below 5.0 and its coverage ratio to stay above 2.0, both comfortably distant from where the firm is currently. Shaw has maintained a dividend of CAD 1.19 per share since 2016, and will remain flat over the next few years, as the firm allocates capital to additional spectrum auctions in 2021 and 2022. Shaw suspended its share buyback in the wake of the COVID-19 pandemic, but it still expects its free cash flow will be able to cover the dividend.
Bulls Says
- Shaw is doing all the right things to build up its wireless business, acquiring and building out sufficient assets and luring customers by offering great deals.
- The Canadian government is keen on bringing wireless competition to the big three incumbents. Unlike previous national upstarts, Shaw’s strong financial position and family control afford it the time and money to stick with a long-term strategy to succeed.
- Shaw’s move to bundle wireless and wireline service with Shaw Mobile could expedite its wireless share gains and stem wireline losses it has seen recently
Company Profile
Shaw Communications is a Canadian cable company that is one of the biggest providers of Internet, television, and landline telephone services in British Columbia, Alberta, Saskatchewan, Manitoba, and northern Ontario. In fiscal 2021, more than 75% of Shaw’s total revenue resulted from this wireline business. Shaw is also now a national wireless service provider after acquiring Wind Mobile in 2016. Shaw has upgraded its wireless network, undertaken an aggressive pricing strategy, and significantly enhanced its spectrum holdings. As a smaller carrier, Shaw has favored bidding status in spectrum auctions, giving it a further boost in enhancing its wireless network. At the 2019 auction, Shaw added significant amounts of 600 MHz spectrum to the 700 MHz spectrum it is currently deploying.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
which tend to focus on a particular bond type or market segment, Tradeweb operates with a broad scope, offering trading in just about anything related to fixed income, including derivatives, as well as some equity exchange-traded funds. That said, Tradeweb’s interest-rate and credit segments are the heart of the company, making up 77% of its revenue in 2020, and are responsible for much of its growth.
Fixed-income markets globally are increasingly moving away from voice-negotiated trading toward electronic platforms because the liquidity and workflow enhancement of these electronic networks promise to lower implicit and explicit trading costs for increasingly expense-conscious firms. Tradeweb has been a major beneficiary of this trend, as its largest competitor is the implicit competition represented by traditional voice-based trading. As bond and derivative markets have shifted, Tradeweb has enjoyed significant tailwinds to its business and has steadily taken overall market share, with its interest-rate swap and U.S. investment-grade bond trading volumes in particular rising rapidly. With most fixed-income trading still primarily voice-based, this transition is still in its early days and Tradeweb has a long runway of growth ahead of it. While revenue growth is likely to decelerate somewhat from an impressive CAGR of 21% over the last three years, Tradeweb is expected to enjoy double-digit revenue growth in the mid- to low teens for years to come.
Financial Strength:
Tradeweb is in an excellent financial position, with more than $821 million in cash and investment securities at the end of September 2021 and no outstanding long-term debt. Tradeweb enjoys wide margins and strong cash flow, and there are no any real prospect of the company being placed under financial pressure in the foreseeable future, particularly given the countercyclical behavior its revenue generation exhibits. Tradeweb’s business has high upfront costs but requires little incremental capital to support growth once a trading platform has been developed, limiting the firm’s capital needs. With no debt to pay down, analysts expect that Tradeweb will continue to use its incoming cash flow to pay dividends, buy back shares, or invest back into its business, either in the form of internal development or external acquisitions.
Bulls Say:
- Tradeweb benefits from the secular transition away from voice negotiations toward its electronic trading platforms in fixed-income markets, providing the firm with an easy path for continued market share and revenue growth.
- Tradeweb’s business features upfront costs and low variable expenses, creating an easy path for operating margin expansion as its revenue base grows.
- Tradeweb interest-rate swap and U.S. investment grade corporate bond trading platforms have enjoyed sharp market share gains in recent years, with the pandemic an additional catalyst to ongoing industry trends.
Company Profile:
Founded in 1998 and headquartered in New York City, Tradeweb Markets is a leading fixed-income trading platform. While it does offer electronic processing for some voice-negotiated trades, the company focuses primarily on providing electronic trading networks that connect broker/dealers, institutional clients, and retail customers. While the company offers trading in a wide variety of products, the bulk of its business is in U.S. and European government debt, mortgage-backed securities, interest-rate swaps, and U.S. and international corporate bonds. The firm also sells fixed-income trading and price data, primarily through a deal with Refinitiv’s Eikon service.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
that it stands to capitalize on its research and development, solid quality, operational excellence, and acquisition strategy. However, Polaris’ brands do not benefit from switching costs, and with peers innovating more quickly than in the past, it could jeopardize the firm’s ability to take price and share consistently, particularly in periods of inflated recalls or aggressive industry discounting.
Polaris had sacrificed some financial flexibility after its transformational acquisitions of TAP (2016) and Boat Holdings (2018), but debt-service metrics have been rapidly worked down via EBITDA expansion and cost-saving scale benefits (with debt/adjusted EBITDA set to average around 1.1 times over our forecast). As evidenced by solid ROICs (at 17%, including goodwill, in 2020), Polaris still has top-notch brand goodwill in its segments, supporting consumer interest and indicating the firm’s brand intangible asset is intact.
Financial Strength:
For Polaris exiting the recession, rising profits led to increases in company equity, which helped reduce debt/capital from 49% in December 2009 to 31% in December 2015. With the addition of leverage from the acquisition of TAP (which the company paid $655 million net of $115 million in tax benefits for in 2016), and the financing of Boat Holdings in 2018, Polaris ended 2019 with debt/adjusted EBITDA just above 2 times and debt/capital of 60%. However, robust demand and successful execution through COVID-19 has restored the metric to 1.5 times at the end of 2020, a very manageable level which the company should be able to maintain. Additionally, Polaris is poised to produce strong cumulative free cash flow to equity over the next five years’ worth around $3.2 billion.
Bulls Say:
- Polaris has historically had a strong reputation for innovation, and new product lines and acquisitions have supported solid performance in both strong and difficult environments.
- Profit margins could tick up faster than we expect with faster than enterprise average volume growth from the sizable off-road and low-operating expense Boat Holdings business segments.
- Management remains focused on operating as a bestin-class manufacturer. With continutious improvement at existing facilities, the pursuit of excellence should support stable operating margin performance.
Company Profile:
Polaris designs and manufactures off-road vehicles, including all-terrain vehicles and side-by-side vehicles for recreational and utility purposes, snowmobiles, small vehicles, and on-road vehicles, including motorcycles, along with the related replacement parts, garments, and accessories. The firm entered the aftermarket parts segment in 2016, tying up with Transamerican Auto Parts and then tapped into boats through the acquisition on Boat Holdings in 2018, offering exposure to new segments of the outdoor lifestyle market. Polaris products retailed through 2,300 dealers in North America and through 1,400 international dealers as well as more than 30 subsidiaries and 90 distributors in more than 120 countries outside North America at the end of 2020.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
FedEx and UPS are the major U.S. incumbents.UPS has also boosted its exposure to the asset-light third-party freight brokerage market, especially with its 2016 acquisition of truckload broker Coyote Logistics.
Despite its unionized workforce and asset intensity, UPS produces operating margins well above competitors’, thanks in large part to its leading package density. In the United States, FedEx’s express and ground units together handled 14.4 million average parcels daily in its four fiscal quarters ended in November 2020, while UPS moved 21.1 million in calendar 2020. The disparity is greater in the U.S. ground market, where UPS moved on average 17.4 million parcels per day and FedEx ground averaged 11.4 million.
Favorable e-commerce trends should remain a longer-term top-line tailwind for UPS’ U.S. ground and express package business. That said, growth won’t be costless; UPS is amid an operational transformation initiative aimed at mitigating the challenges of a rising mix of lower-margin business-to-consumer deliveries.
Amazon has been insourcing more of its own last-mile delivery needs at a rapid pace to supplement capacity access amid robust growth. This removes some incremental growth opportunities for UPS while creating risk that Amazon decides to take in house the shipments it currently sends though UPS–the retailer now makes up approximately 13% of UPS’ total revenue.
Financial Strength
UPS’ balance sheet is reasonable and mostly healthy. It held $6.9 billion in cash and marketable securities compared with roughly $24.7 billion of total debt at year-end 2020. Debt/EBITDA leverage came in around 2.4 times in 2020, ignoring underfunded pensions, though the firm plans to pay off more than $2 billion in 2021, with help from cash generation and the $800 million UPS Freight sale. Leverage will likely finish 2021 at comfortably less than 2 times EBITDA. EBITDA/interest coverage for 2020 was a healthy 15 times.Share repurchases slowed modestly in 2018 and 2019 on account of heavy capital investment and were suspended in 2020 (into 2021) due to pandemic risk-mitigation efforts (including debt reduction).
Bulls Say
- UPS’ U.S. ground and express package delivery operations should enjoy healthy medium-term growth tailwinds rooted in highly favorable e-commerce trends.
- UPS’ massive package sortation footprint, immense air and delivery fleet, and global operations knit together a presence that’s extraordinarily difficult to replicate.
- On top of superior parcel density, UPS uses many of the same assets to handle both express and ground shipments, driving industry-leading operating margins.
Company Profile
As the world’s largest parcel delivery company, UPS manages a massive fleet of more than 500 planes and 100,000 vehicles, along with many hundreds of sorting facilities, to deliver an average of about 22 million packages per day to residences and businesses across the globe. UPS’ domestic U.S. package operations generate 61% of total revenue while international package makes up 20%. Less-than-truckload shipping, air and ocean freight forwarding, truckload brokerage, and contract logistics make up the remaining 19%.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.