TELUS Corp.
(T-T, TU-N) C$28.23 | US$20.97
Is it time to switch into TELUS? Event
This is the first in a semi-regular series of "weekend reading" notes that we plan to publish based on key topics that have come up in our recent conversations with investors. Therefore, there is no specific event causing the report.
Impact: NEUTRAL
There are no changes to our estimates, rating, or target price.
Given that some investors could soon be getting cash from another investment in the sector, and given that some investors have achieved good gains in Rogers recently (Exhibit 1 shows the multiple expansion for RCI.B versus T and BCE since August 8, and RCI.B and T are up by 27% and 6% since then, respectively), we are getting asked if it is the right time to be adding to (or initiating) positions in T. The premise is clearly that TELUS could be on the cusp of benefiting from lower capex and lower opex in 2023 now that the bulk of the generational FTTH investment is complete.
In the analysis we simplified the outlook for TELUS by adjusting for only the current market value of TIXT. We back out TIXT EBITDA and then apply a range of multiples to the remaining TTech segment EBITDA. We are not trying to predict what TIXT does (no target price used) and we are not breaking out healthcare and agriculture using estimated EBITDA and higher multiples (so we are not trying to predict when and how spin offs could occur).
On a simple consolidated basis (so no adjustments for TIXT, MLSE, Blue Jays, or Cogeco), T shares are currently trading at 9.6x 2022E EBITDA versus 9.0x for BCE and 8.6x for RCI.B, as seen in Exhibit 4. Most observers believe that TELUS deserves a premium owing to both its asset mix (heavy wireless exposure plus health/agriculture growth verticals) and its operational excellence (continued on next page).
TD Investment Conclusion
Our answer is effectively yes, and we maintain our BUY rating, but we have tried to outline some upside and downside possibilities for T shares on page two. It should be noted that we are not trying to signal that RCI.B shares have already fully priced in potential near-term positive catalysts.