Telus UpdateBuy , Target C$50.00
- Capex remains high despite slowing growth; reiterating BUY rating, C$50
target
BUY rating and C$50.00 12-month target price for TELUS shares
Because TELUS has a number of new initiatives that require capex increases during 2009, we believe investors are increasingly concerned about the company’s strategy in light of the slowing revenue growth and the difficult economic environment.
However, we view the company’s strong balance sheet and low cost of debt capital as compared with those of its peers as a competitive advantage, and we believe that since there are no strategically attractive assets for sale in Canada, the company’s long-term strategy to build value through aggressive bidding on large enterprise contracts and by building an HSPA network overlay and improving its broadband network to support IPTV could pay off in the long run.
Therefore, we believe that, given our 2009 estimates, TELUS could continue its share repurchase program, but is unlikely to increase its dividend until it starts to reap the benefitsof those new initiatives.
During Q4/09, TELUS reported capex of $631 million, up 34% Y/Y and representing 25.8% of revenues, despite Q4/08A operating revenues of $2.454 billion, which increased by a decelerating 5.3% Y/Y, slightly below our $2.465 billion estimate.
Source
www.amprogram.com