TD Equity Research - Telus Corp.Concurrent with TELUS International (TIXT) lowering revenue and EBITDA guidance for 2023, TELUS adjusted its consolidated guidance. Revenue growth is now expected to be 9.5-11.0% y/y (previously 11-14%) and EBITDA growth is now expected to be 7-8% y/y (previously 9.5-11.0%).
We have incorporated the estimate and target price changes for TELUS International into our TELUS model. Given the better-than-expected pre-announced subscriber results for TELUS, there was a slight increase in our FY23 and FY24 EBITDA for the TTech segment, which was clearly more than offset at the consolidated line by lower TIXT forecasts.
TD Investment Conclusion
The TIXT target price declining to US$18.00 from US$30.00 has pushed our target price for TELUS down to $30.00 from $31.00. This still points to a target return over 12 months that easily supports a BUY rating. We see some risk of weak sentiment towards the name in the nearterm, owing to questions about the amount of capital that has been allocated to nontelecom assets historically. But we would view any weakness as a buying opportunity for long-term investors. We still expect positive results and valuation catalysts for the Healthcare segment in the next 6-12 months, and the core business continues to offer investors industry leading FTTH penetration, wireless churn, and ESG rankings. We also expect 7% annual dividend growth to continue despite the seemingly largely cyclical challenges facing TIXT. Note that TIXT on a 100% consolidated basis (TELUS owns only 55%) accounts for only 11% of our 2024E total EBITDA pre-restructuring costs.