Open this photo in gallery: The Telus offices are seen in Ottawa on Friday, Aug. 4, 2023.JUSTIN TANG/THE CANADIAN PRESS
Telus Inc. has acquired U.S.-based employee health services company Workplace Options for $500-million, as it continues to invest in its health services operations ahead of a possible spin-out or equity sale of the division.
The company has also signed a non-binding agreement with an unnamed third-party strategic partner to invest $285-million in the business.
In an interview Friday morning, Telus chief financial officer Doug French said that the companies were still finalizing the conditions of the investment, but characterized the third party as one with sector expertise, saying it holds other health care investments. Telus will also assume $100-million in debt.
Shares in Telus closed up 7.1 per cent at $22.28 on the Toronto Stock Exchange Friday afternoon.
Telus Health prepares to stand alone after years of acquisitions
Telus reported separate financials for its Telus Health segment for the first time in releasing results for its first quarter ended March 31, signalling the growing importance of the unit for the company as well as a move toward greater transparency as Telus seeks further opportunities to monetize the division.
Recently, Telus Health president Navin Arora told The Globe and Mail the company could sell a minority stake in the division or spin it off in an initial public offering, but would retain majority ownership for the foreseeable future.
In addition to a potential Telus Health deal, the company has said it plans to raise money to pay down debt by selling non-core assets, decommissioning its copper transmission lines and possibly selling cellphone towers.
During the quarter, Telus put a stake in its towers up for sale with an estimated $1-billion-plus price tag. Mr. French said Friday morning the company is making progress on that front.
“We’re down to a short list. We’re working through diligence as we speak. So we expect to be able to announce more in the not-too-distant future,” Mr. French said.
Telus posted $5-billion in revenue in its first quarter ended March 31, up from $4.9-billion last year and beating analysts’ expectations. Adjusted earnings were about flat at $388-million. It also had higher-than-expected free cash flow, which Mr. French said was the result of higher earnings, lower-than-expected capital expenditures and lower restructuring charges.
The company met analysts’ expectations when it came to subscriber loading, with net 20,000 new mobile phone additions.
Telus puts stake in tower network up for sale, hires TD bankers to pitch investors
But this came at the expense of average revenue per user, pressured by continued competitive promotional activity in the sector, and lower overage fees as customers take up bigger data buckets and international plans, said Bank of Nova Scotia analyst Maher Yaghi in a note to investors.
In the same quarter, rivals Rogers Communications Inc. and Quebecor Inc. added 34,000 and 54,400 subscribers, respectively, while BCE Inc.’s Bell Canada lost nearly 600 net mobile customers.
RBC Capital Markets analyst Drew McReynolds called Telus‘s results solid, “particularly considering the tough operating environment.”
Telus extended its dividend growth program by several years, aiming to grow its annual payout from 3 per cent to 8 per cent annually until the end of 2028, representing more moderate growth than before. In 2022, the company had set the goal of 7-per-cent to 10-per-cent annual dividend growth until 2025.
This growth will be supported by the company’s higher cash flow generation and the expansion of its business lines, including health, as well as slowing expenses as the company winds down its fibre line buildout.
Telus chief executive officer Darren Entwistle told analysts Friday afternoon the dividend growth model reflected the board’s “longer-term view for this organization,” balancing the interests of equity and debt holders.
“We chose those numbers wisely to give us the latitude that we need,” he added.
The day before Telus reported earnings, rival BCE Inc. cut its dividend by more than half in light of cash flow pressures and high leverage, with $32-billion in long-term debt.
Despite the reduced growth plans, some analysts saw Telus’s new dividend targets as still too high.
“Given Telus‘s high leverage and the lower overall growth of the industry we would prefer that the company targets the lower end of that range,” Mr. Yaghi said. Telus had $24-billion in long-term debt at the end of the first quarter.
“The negative investor sentiment around companies with elevated payouts would have warranted more prudence on shareholder distributions, in our view,” said Desjardins analyst Jrome Dubreuil in an investor note.
After the 7-per-cent dividend increase Friday, Telus stock yields 8 per cent, “which is more than enough to satisfy yield-seeking investors,” he added.