Canaccord
TELUS* (T : TSX : $36.20), Net Change: 0.09, % Change: 0.25%, Volume: 447,921
2008? It's been awhile. TELUS will report Q1/13 results and host its AGM on May 9. Canaccord Genuity Telecommunications Analyst Dvai Ghose expects: 1) strong wireless, broadband and TV subscriber growth; 2) wireless and wireline EBITDA expansion and 6% consolidated EBITDA growth; 3) an extension of TELUS’ dividend growth targets – Ghose expects another 10% annual DPS growth over the next three years; and 4) a $2-billion NCIB over the next three years. TELUS remains Ghose's remains our top-pick. Without any buybacks, Ghose forecasts that TELUS’ net debt to LTM EBITDA will decline to only 1.5x by year-end. TELUS has a debt leverage objective of 1.5-2.0x EBITDA. Management has recognized that TELUS’ balance sheet is arguably underlevered and that its cost of debt is well below its cost of equity, especially on a post-tax basis. As a result, TELUS’ CEO Darren Entwistle has also said that he will announce share buyback targets at the AGM on May 9. These will be the first share repurchases since 2008. In Ghose's view, TELUS could easily buy a half turn of current annual EBITDA or $2 billion of stock over the next three years and still enjoy one of the strongest balance sheets in the sector. Given EPS and FCF per share accretion from buybacks, Ghose views such buybacks as very complementary to TELUS’ dividend growth objectives. Of note, $2 billion equates to approximately 8% of TELUS’ current market cap. Ghose believes that a $2 billion share repurchase could generate as much as 5-6% EPS and FCF/share accretion.