Telus Corp T.T

RBC

[retiredcf]

November 5, 2021

Outperform

TSX: T; CAD 28.31; NYSE: TU

Price Target CAD 32.00

TELUS Corporation

Strong Q3/21 Results in Line with Our High Expectations

Our view: Q3/21 financial results were in line with our forecast with slightly stronger-than-expected wireless and Internet net additions. 2021 guidance was reiterated with the company announcing a +5.2% dividend increase (slightly higher than expected). We view the quarter as neutral to a modest positive for the shares.

First impression

• Strong Q3/21 results in line with our high expectations. Revenues and adjusted EBITDA (excluding unusuals) were $4,251MM (+6.8% YoY) and $1,559MM (+7.1%), respectively, versus our estimates of $4,230MM and $1,549MM (consensus is $4,288MM and $1,549MM). The positive variance was due to higher fixed data services revenues ($1,109MM versus $1,050MM) offset in part by lower-than-forecast equipment revenue (consistent with that across the industry). Adjusted EPS was $0.29 versus our estimate of $0.28 (consensus is $0.28). See Exhibit 1 for a summary of Q3/21 results versus our expectations.

• Solid financial and operational performance from TELUS Technology Solutions (TTech) with +13% growth in fixed data services well above forecast. TTech revenues and adjusted EBITDA were $3,664MM (+4.1% YoY) and $1,410MM (+7.3%), respectively, versus our estimates of $3,618MM and $1,405MM. The positive revenue variance was mainly due to +13% growth in fixed data services versus our +7% estimate. Adjusted EBITDA margins were 36.7% (+10bps YoY) versus our 36.6% estimate. Key wireless metrics were solid: (i) mobile network revenue was $1,588MM (+3.7% YoY) versus our estimate of $1,574MM (+2.7%); (ii) mobile phone net additions were +135k versus our estimate of +116k and consensus of +113k; and (iii) mobile phone ARPU and ABPU growth was -0.7% and flat, respectively, above our estimates of -0.5% and -0.5% and consensus of -0.8% and -0.2%. Key wireline metrics were also solid: (i) Internet net additions of +46k versus our estimate of +40k and consensus of +40k; (ii) TV net additions of +10k versus our estimate of +15k and consensus of +16k; (iii) security net additions of +30k versus our estimate of +18k; and (iv) fixed data service revenue of $1,109MM (+12.8% YoY) versus our $1,050MM estimate.

• TELUS International in line. TELUS International revenues and adjusted EBITDA were $587MM (+27.3% YoY) and $149MM (+4.9%), respectively, versus our estimates of $612MM and $144MM.

• Other notables: (i) the quarterly dividend was increased +5.2%, ahead of our estimate of +4.0%; (ii) TELUS Health service revenue growth was +12.1% YoY versus our +15.0% estimate; and (iii) management reiterated 2021 guidance as expected.

• What to look for on the 12:00pm ET conference call (#1-855-353-9183 CC:67674#). (i) An update on the competitive and operating environment in Q4/21; and (ii) the outlook for ABPU/ARPU in Q4/21 including potential roaming and overage impacts