cibc reduce target priceTELUS INTERNATIONAL (CDA) INC. 2022 Guidance Highlights Strong Demand Environment
Our Conclusion
TELUS International (TI) released 2022 guidance, which includes organic revenue growth in the high teens, driven by customer expansion in its highgrowth verticals (high tech/e-commerce) and demand for newer digital services (including data annotation). TI continues to navigate the current inflationary wage environment, which is expected to persist into the first half of 2022. We have increased our 2022 revenue growth expectations to 18% (from 15%) post the quarter, while reducing our 2022 adjusted EBITDA margin by 100 bps. With over $800 million in available liquidity and leverage at the lower end of the target range, we see M&A as upside to our model.
We retain our Outperformer rating and reduce our price target to $44 from $48, as we reduce our multiple by a turn given the current market environment.
Key Points A Strong Demand Environment: TI continues to be well positioned in a strong demand environment, with the pandemic accelerating demand for automation and digitization solutions. TI exited Q4 with a sales funnel in excess of $2 billion. TI continues to be well positioned in high-growth verticals, with the high tech/games and e-commerce/fintech verticals now representing 58% of revenue (vs. 51% in F20).TI’s AI Data Solutions group (Lionbridge/Playment) contributed 21% growth in the quarter, with management noting strong demand for data annotation solutions within its existing customer base.
Navigating A Rising Cost Environment: TI added 12,000 employees in 2021, increasing headcount 23% Y/Y despite a tight talent market. TI is focused on minimizing attrition, with the company putting annual wage increases in place earlier this year (H1 vs. H2) and highlighting its culture, which includes a holistic approach to health and wellbeing. That said, TI expects wage inflation to continue at least into the first half of 2022. The company is looking at passing rising wage costs onto clients where possible and automating pieces of the business.
M&A Is Upside: With Lionbridge and Playment performing well within TI and leverage at the lower end of TI’s target range, we expect a renewed focus on the M&A pipeline. The company has $831 million in available liquidity and we expect the current tech market volatility may lead to improved valuations and lower PE participation. We expect the M&A focus to be on acquisitions that TI can cross-sell into its high-growth verticals.