TSX:TIXT - Post Discussion
Post by
retiredcf on May 05, 2023 8:28am
TD Reaction
Again, this is a USD target. GLTA
TELUS International (Cda) Inc.
(TIXT-N, TIXT-T) US$18.48 | C$25.01
Q1/23 Results: Good Results in a Challenging Environment
Event
TELUS International (TI) reported Q1/23 results Thursday morning.
Impact: SLIGHTLY POSITIVE
Bucking the macro trend. We believe the shares have traded lower, largely due to concerns of macro headwinds. However, we remain optimistic in the company's performance, given the in-line performance despite risks from its high exposure to the tech sector, including two of its largest customers, Meta and Alphabet. We estimate that Meta's revenue contribution to the quarter was down 18% y/y, but grew 16% q/q, suggesting stabilization. We believe that Meta's contribution will decline further next quarter, but stabilize thereafter. Alphabet's revenue contribution was up 7% y/y, but down 5% q/q. If we remove the impact of Meta and Alphabet, the rest of TI's tech and games customers grew its revenue contribution by 19% y/y. Considering the challenges in the space, we believe this is a strong performance and demonstrates the company's diverse business and strong execution.
Reiterated guidance suggests a ramp-up throughout the year. Management reiterated its guidance, including organic and WillowTree (WT) revenue contributions. WT contributed $57mm of revenue to the quarter. Guidance for WT's 2023 contribution of $255mm-$260mm implies ~$67mm/quarter of revenue contribution for the remainder of the year. We believe the ramp up in WT revenue will come from increased cross-sell work with TELUS and other clients. Management noted that the cross-sell opportunities in the pipeline are very strong and that it is already pitching it to clients.
AI opportunities abound. Management sounded particularly upbeat about the AI opportunity. In our recent AI report, we highlighted TI as one of the potentially larger beneficiaries of AI in our coverage. Although many are concerned about AI displacing CX workers, we view this as an opportunity. TI has unique assets in data annotation and trust and safety that allow it to service a large part of the AI value chain and is differentiated from many of its competitors. We believe that AI will drive considerable growth and margin expansion opportunities for TI.
TD Investment Conclusion
We are maintaining our BUY rating and $30.00 target price. Our target price is based on 11.0x-12.0x our C2024 EBITDA estimates.
Be the first to comment on this post