TD comment on updateTELUS International (Cda) Inc. (TIXT-N, TIXT-T) US$21.96 | C$29.48
Investor Day: Targeting 10x EV Growth in Five Years Event Investor day. Impact: SLIGHTLY POSITIVE
The event was supportive of our positive view on TI given its many levers to drive solid organic growth and industry-leading margins, augmented by a proven M&A track record.
Management's target to grow EV by 10x over five years is expected to be driven by its medium-term organic goals of mid- to high-teens organic growth and 100-200 bps EBITDA margin expansion over three years, accretive M&A, and multiple expansion.
>50% of revenue from higher-growth segments. Pro-forma WillowTree (WT), 48% of TI's 2022 revenue came from Customer Experience Management (CXM), 22% from Digital IT, 17% from Trust & Safety (como), and 13% from AI Data Solutions (TIAI). With more than half the business now coming from markets that are expected to grow by more than 20%, we believe that TI is well-positioned to accelerate organic growth out of the current macro cycle. WT expected to set integration records.
WT is expected to generate material synergies in record time. Complementary customers, verticals, and capabilities are expected to drive considerable revenue synergies in H1/23, especially as WT leverages TI's existing client relationships. 5-6 cross-sell pitches have already been done. There are also large opportunities for managed services contracts after WT deploys a solution, which is a highly successful, profitable, and defensible play we've seen from other IT Services vendors. WT EBITDA margins are expected to approach TI's levels by 2024.
AI opportunities. Management sees many opportunities to train AI and leverage its capabilities to drive efficiencies. The increased attention on AI highlights the importance of having high quality, curated datasets TIAI provides. Given the infancy of the solutions, its como solutions would also likely be in demand.
Como leader. TI is one of two vendors with over 10% market share in the como market, the other being Accenture. TI's culture and market-leading support programs allow it to outperform the competition and help it gain market share. Como is TI's highest margin business, demonstrating the value it brings to clients. Our view is the growth of user-generated content and increased regulations will drive increased demand for these solutions.