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Battle with Telus erodes Shaw's margins: UBS

Second-quarter 2012 cable margins for Shaw Communications Inc. are down as a result of the company's costly defensive effort against competitor Telus Corp, according to UBS Investment analyst Phillip Huang.

Mr. Huang estimates the Calgary-based communications company's cable revenue and EBITDA growth slowed to 1.6 per cent and 2.1 per cent (vs. first-quarter growth of 4.5 per cent and 6.8 per cent, respectively), while cable margins were near flat year over year (vs. +100bps).

Shaw's fortunes were pulled down by three main factors, says Mr. Huang: mass market promotions (such as $19.95 per service for first 6 months), added customer care staff and start-up costs related to recent business contract wins (such as Husky's Sunrise Energy Project).

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Mr. Huang believes the promotions and improved customer service helped moderate basic subscription losses to Telus and added services with existing subscribers. He estimates Shaw lost 16,000 basic subscriptions (vs. 23,000 in the first quarter) and gained 31,000 digital, 9,000 Internet, and 27,000 phone subscriptions. However, it is not clear that the improved subscriber trends can be sustained as he believes management has not only ended the mass market promotions, but also raised rates in March.

Longer-term, Mr. Huang believes more positive events are in store for Shaw. "While we remain cautious on Shaw's near term subscriptions/financial performance, we believe the shares will continue to benefit from market speculation on M&A, as well as the attractive 4.6% yield," he says. "If the Shaw family decided to sell, we believe both Rogers and BCE would be ready to make offers."

Upside: Mr. Huang is maintaining his "neutral" rating and $21 (CAN) target price.

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CIBC World Markets Inc. analyst Brad Sturges is initiating coverage on Amica Mature Lifestyles Inc. with a "sector performer" rating due to strong projected growth.

Mr. Sturges foresees significant growth in Amica's property portfolio of 23 luxury retirement residences due to completed acquisitions of additional interests, third-party property transactions, the lease-up of non-stabilized properties and higher mature same-community occupancy.

Upside: In addition to the "sector performer" rating, Mr. Sturges has set a $10 (CAN) price target.

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The steady rise of Dollarama shares has resulted in a ratings downgrade by Versant Partners Inc. analyst Neil Linsdell.

Mr. Linsdell is downgrading Dollarama from "buy" to "neutral" as the stock has well exceeded his price target ahead of the release of fourth-quarter 2012 results on Wednesday.

Mr. Linsdell expects fourth-quarter revenue of $454-million, up 11 per cent from a year ago but short of consensus $458-million. His projections for both an EBITDA margin of 19 per cent and earnings per share of $0.68 are both in line with consensus.

Downside: Mr. Linsdell is maintaining his price target of $46 (CAN)

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After a fourth-quarter with almost no acquisitions, National Bank Financial analyst Rupert Merer is adjusting his estimates for Progressive Waste Solutions Ltd. to remove the impact of potential future acquisitions.

After badly missing guidance and a change to the CEO in 2011, Mr. Merer believes the company will try to repair its reputation by setting conservative guidance. Despite this, he feels that Progressive Waste Solutions is priced for slow growth in 2012 and continues to lag its peers on valuation.

Upside: Mr. Merer is maintaining his "outperform" rating and $25 (U.S.) price target.

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Second-quarter 2012 trends for Gildan Activewear Inc. are tracking above guidance despite a recent decline in product shipments, according to National Bank Financial analyst Vishal Shreedhar.

After strong trends in February, shipments of Gildan apparel from wholesalers to U.S. screenprinters decreased by 6.9 per cent year-over-year in March 2012. However, Mr. Shreedhar estimates that Gildan's second-quarter unit growth was 6.4 per cent versus industry growth of 4.7 per cent. He believes a rebound in wholesale shipments, lower cotton prices and an end to extended shutdowns will help boost earnings.

Upside: Mr. Shreedhar is maintaining his "outperform" rating and $32 (CAN) price target.

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About the Author
Streetwise editor

Jody White is the web editor for Streetwise. He previously worked as a senior editor at Canadian Business Online and has written for MoneySense Magazine, Maclean's, the National Post and other national publications. More

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