TELUS Corp.
(T-T, TU-N) C$27.97 | US$20.63
2023 Outlook: Estimates and Valuation Adjusted Event
With recent and expected changes in both interest rates and competitive intensity, we have adjusted several forecast and valuation assumptions in our model.
Impact: MIXED
Broadly speaking, lower bond yields and deferred spectrum auction payments have been offset in our valuation model with lower ARPU/EBITDA growth estimates and a reduction in our base-case target multiple for wireless assets. We have implemented the following assumption changes today for each of TELUS, BCE, and Rogers:
- The bond yield estimate embedded in our target price has been lowered to 2.90% from 3.25% (blend of 3.10% TD Economics forecast and 2.76% stripped yield curve). Interest expense estimates for 2023 have increased slightly to reflect higher variable rates.
- 80% of the 3800 MHz spectrum auction costs have been pushed into Q1/24 from Q4/23 (as per ISED's recently released payment schedule).
- Given both aggressive promotions in the holiday period, and our increased concerns about escalating fourth-carrier competition going forward, we have lowered our 2023 wireless ARPU growth estimate to 0% from 1% (prior to outage credit adjustments). Postpaid subscriber addition estimates have also been lowered.
- Lower growth and elevated competitive risk have caused us to lower our base-case wireless target multiples. Before interest-rate adjustments, Bell Mobility and TELUS Mobility decline to 9.5x 2023E EBITDA (from 10.0x), while Rogers Wireless declines to 9.0x (from 9.25x).
Other company-specific forecast changes for TELUS are described on page two. In this note, we also provide our preliminary estimates for Q4/22 (Exhibit 1, and note that these estimates are unchanged), and we have updated our long-term valuation charts for EV/EBITDA and dividend yield relative to bond yields (exhibits 2 and 3).
TD Investment Conclusion
Our target price is unchanged at $32.00 and we are maintaining our BUY rating. T shares remain more expensive than peers, but we remain comfortable with this premium owing to arguably higher-multiple growth segments and the prospect of above-average EBITDA and FCF growth going forward, now that the bulk of the FTTH capex investment is complete.