Post by
retiredcf on Nov 07, 2022 8:50am
TD Report
Now one of the lower targets on the Street at $32.00. GLTA
TELUS Corp.
(T-T, TU-N) C$28.70 | US$21.30
Higher Margins and Lower Capex Coming Soon Event
Q3/22 results released and 2022 guidance revised to include LifeWorks revenue/ EBITDA/capex/FCF and to reflect lower revenue guidance at TIXT plus lower wireless equipment revenue.
Impact: MIXED
Our estimates for 2022/2023 have declined slightly owing to the flow-through of lower TIXT estimates and a slower ramp-up in contributions from LifeWorks than what we had modelled previously (plus lower wireless equipment revenue, but this has a very little EBITDA impact). However, with rounding, our target price remains unchanged at $32.00, with no change in our target multiples or methodology. Core telecom EBITDA and subscriber metrics in Q3/22 were mixed versus TD/consensus estimates (see page two for details), but generally still strong on an absolute basis (record mobile phones sub adds and still industry-leading churn).
TD Investment Conclusion
Looking at 2022E or LTM results could lead one to be concerned about EBITDA margins, debt leverage, and the dividend payout ratio. But we believe the market will remain forward-looking with this name, owing to the company's solid track record of growth, customer service excellence, and returns to shareholders. With capex set to decline to ~$2.6 billion in 2023 (TTech segment C/I of ~14%), we estimate that the dividend payout ratio will improve to 76% (not adjusting for the DRIP) and debt/EBITDA will decline to 3.2x (despite $1 billion assumed for spectrum). We also expect meaningful improvements in TTech segment EBITDA margins over the next couple of years (near 38% in 2023 and then likely closer to 39% in 2024), owing to four key factors: a) LifeWorks synergies now targeted at $200mm ($60mm of which is opex) versus $150mm originally; b) conversion to FTTH from copper (20% lift in margins per home); c) J-Curve maturity in EBITDA from the Healthcare and Agriculture segments; and d) cost restructuring efforts targeting $200mm-$300mm in savings over three years. Even if telecom competition escalates following the Rogers-Shaw-Quebecor deals, we believe TELUS can deliver strong EBITDA/FCF growth going forward. This is a high-quality stock with both defensive and growth characteristics. We are maintaining our BUY rating.
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