Telus Corp T.T

RBC

[retiredcf]

February 9, 2023

TELUS Corporation
Q4/22 Results in Line with Our Forecast; Delivering Industry-Leading 2023 Guidance

TSX: T | CAD 28.09 | Outperform | Price Target CAD 34.00

Sentiment: Neutral

Our view

Solid Q4/22 results were in line with our forecast with robust wireline loading. While 2023 revenue, adjusted EBITDA and capex guidance was in line to slightly better than expected, FCF guidance is below our forecast due to a number of cash items. On balance, we view the results as neutral for the shares at the current valuation.

First impression

• Q4/22 results in line with our forecast. Revenues and adjusted EBITDA (excluding unusuals) were $5,058MM (+3.8% YoY) and $1,689MM (+11.3%), respectively, versus our estimates of $5,019MM and $1,699MM (consensus is $5,027MM and $1,674MM). Adjusted EBITDA margins of 33.4% (+226bps YoY) were slightly below our estimate of 33.8%. Adjusted EPS was $0.23 versus our estimate of $0.29 (consensus is $0.29).

• Delivering industry-leading 2023 guidance with YoY FCF growth moderated by a number of cash items. Management provided 2023 guidance: (i) consolidated operating revenue growth of +11% to +14% versus our revenue forecast of +8.1%; (ii) consolidated adjusted EBITDA growth of +9.5% to +11%, versus our forecast of +10.6%; (iii) FCF of ~$2.0B, below our forecast of $2.7B; and (iv) capex of ~$2.6B in line with our forecast of $2.6B (13% capex intensity). The shortfall in FCF versus our estimate reflects the cumulative impact of higher cash taxes, cash interest and restructuring charges, working capital and one-off items.

• Strong loading across TELUS Technology Solutions (TTech). TTech revenues and adjusted EBITDA (excluding unusuals) were $4,364MM (+3.1% YoY) and $1,479MM (+9.7%), respectively, versus our estimates of $4,285MM and $1,491MM. Adjusted EBITDA margins were 33.9% (+205bps YoY), versus our 34.8% estimate. Key wireless metrics: (i) mobile network revenue growth was +6.5% YoY versus our estimate of +6.4% and consensus of +6.7%; (ii) mobile phone net additions were +112k versus our estimate of +105k and consensus of +123k; and (iii) mobile phone ARPU growth was +2.2% versus our estimate of +2.0% and consensus of +2.0%. Wireline loading was strong: (i) Internet net additions of +42k versus our estimate of +35k (consensus is +36k); (ii) TV net additions of +17k versus our estimate of +15k (consensus is +15k); (iii) security net additions of +28k versus our estimate of +20k (consensus is +22k); and (iv) connected devices net additions of +106k versus our estimate of +75k (consensus is +91k). Churn-wise, mobile phone, Internet, TV, security and telephony were each below 1% with postpaid mobile phone churn of 0.96%.

• Mixed TELUS International results. TELUS International revenues and adjusted EBITDA were $694MM (+8.8% YoY) and $210MM (+24.3%), respectively, versus our estimates of $733MM and $207MM. Adjusted EBITDA margins of 30.3% (+377bps YoY) exceeded our estimate of 28.3%.

• Other notables. (i) Following the substantial completion of the copper-to-FTTH migration program, $75MM (not part of 2023 capex guidance) has now been earmarked in 2023 to develop/monetize excess real estate assets as a result of early successes on copper decommissioning; (ii) PureFibre (FTTP/FTTP) coverage reached 3.0MM households/businesses in BC, AB and eastern QC versus 2.7MM in Q4/21; (iii) 5G now covers 83% of the Canadian population, and (iv) expected LifeWorks synergies continue to be $200MM or more over the next 3-5 years inclusive of revenue synergies, with ~$60MM in nearer-term cost synergies.

• What to look for on the 1:00pm ET conference call (#1-855-353-9183 CC: 90003#). (i) An update on the competitive environments for wireless and wireline; (ii) the extent to which rising macro headwinds are having an impact; and (iii) an update on the LifeWorks integration.