BMO's Tim Casey T/P $33
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May 4, 2023 | 21:41 ET~
TELUS T-TSX TU-NYSE Rating Outperform Price: May-4 $28.20 Target ↑ $33.00 Total Rtn 22%
Q1 in Line; Dividend Raised +3.6%
Bottom Line: Q1 revenue beat expectations reflecting recent acquisitions, while EBITDA was slightly below expectations. EPS was $0.27 vs. Street's $0.26.
TELUS had robust wireless metrics with +8% service revenue growth, strong loading, and ARPU +4%.
The company’s fibre strategy has been effective in increasing revenues and lowering costs. Internet loading beat expectations. DLCX results continue to be affected by elongated sales cycles due to macroeconomic headwinds.2023 guidance reaffirmed.
TELUS raised its dividend by 3.6% to $1.454/share (annualized). Target price to $33 (from $32). Key Points Strong Q1 results. Revenue increased 16% to $4,964mm (consensus $4,881mm) and adjusted EBITDA increased 11% to $1,779mm (consensus $1,788mm).
Adj. EPS was $0.27 vs. $0.30 last year (consensus $0.26).
Reported FCF increased to $535mm from $415mm last year.
TELUS raised its dividend by 3.6% to $1.454 per share (annualized). 2023 guidance reaffirmed. TELUS expects revenue growth of 11-14% (consensus +12%), Adj. EBITDA growth of 9.5-11% (consensus +10%), capex of ~$2.6B (consensus ~ $2.7B), and FCF of ~$2.0B (consensus ~$2.0B).
Well-positioned.
We believe TELUS is well-positioned for the changing competitive landscape following the Rogers/Shaw combination. We expect Quebecor/Freedom to focus on Ontario over TELUS’s core territories. We acknowledge that Rogers will have an improved go-to-market offer with incumbent cable and a national wireless offer. However, TELUS has been preparing for the “new” competitor for two years. TELUS has a differentiated and deeper product bundle than peers.
TELUS will continue to leverage TELUS International customer service tools and platforms.
TELUS has largely completed its fibre build and will avail itself to the operating and capital efficiencies therein.
Robust wireless growth.
TELUS delivered strong service revenue growth (+8%) due to healthy wireless loading (+47k) and industry-leading ARPU growth (+4%) supported by low churn and connected device growth. Roaming ~145% of pre-pandemic levels.
Digitally led customer experiences (TELUS International) results mixed. Revenues grew 22% to $928mm (consensus $900mm, ~5% excl. WillowTree) and adj. EBITDA increased 8% to $186mm (consensus $205mm), reflecting growth in TIAI and financial services, and positive FX impacts. Margins decreased -410bps to 18.1% from acquisition costs and growth opex. TI expects continued near-term macroeconomic headwinds, which have elongated client sale cycles. TI’s F23 guidance was reaffirmed.