Telus’ Great Management Leads to Consistent Telecom Growth With Kickers From Peripheral Businesses

Equity Analyst

Matthew Dolgin

We think Telus’ wireline unit is its best business and the one most likely to drive future returns. The firm has replaced most of its legacy copper network with fiber, significantly upgrading the quality. We think this strategy has set Telus up for a sustained period of success. Telus has already taken significant market share from Shaw, its primary competitor in the western Canadian geographies where it competes. In addition to further success we expect in adding subscribers because of the better capability the fiber network offers, we believe the fiber network gives Telus more pricing power and is more efficient, leading to reduced costs.

We also see Telus with strength in its wireless segment, but we simply think it will remain one of the leaders in a very competitive market. With just less than 30% share of Canadian wireless customers, it is one of the Big Three national providers, along with Rogers and BCE, that collectively serve almost 90% of the market. It also has a network-sharing agreement with BCE that we think makes the service it provides second to none. However, we think a combination of Quebecor and Freedom Mobile will give Canada the strongest fourth competitor the country has seen in many years. Nonetheless, we expect Telus' wireless business to benefit from subscriber growth throughout the industry. We think that Telus' network strength will help it keep pace with peers but that fierce competition will weigh on pricing power throughout the industry. 

Unlike its peers, Telus has also made substantial investments in businesses that are not typically related to telecom. Although the firm generally thinks its telecom network will be an advantage for those businesses, we think they have a high degree of uncertainty and risk. These peripheral businesses--namely in the health, security, and agriculture industries, are typically small and fast-growing but not necessarily profitable. We generally see high potential upside but also the possibility for a drag on returns on invested capital. The firm also maintains a majority stake in Telus International, an IT Services outsourcing and consulting firm that Telus carved out TI via an IPO in early 2021.

Business Strategy & Outlook

Telus' narrow moat stems from efficient scale and cost advantages in its wireless business and efficient scale in wireline. Telus' adjusted returns on invested capital have been depressed over the past three years—averaging about 7% versus 10%-11% in the preceding decade—as the firm has participated in multiple big wireless spectrum auctions and accelerated its capital spending to rebuild its fixed network with fiber. However, we think 2023 is an inflection point that will mark the start of increasing ROICs each year over our five-year forecast. The firm largely completed its new fiber buildout in 2022, and we don’t expect spectrum auctions in the next couple of years to be nearly as big as those in 2019 and 2021. 

In wireless, Telus is one of the three big national competitors, and we believe these three firms have solid moats that protect them from any current or future competition. Rogers, BCE, and Telus share 90% of the total market and operate with an efficient scale. Building and maintaining a wireless network is very capital-intensive, and we think the modest economic returns that national incumbents generate typically result in prospective national competitors either unable to fund a competing network or deciding against it. Even regulatory incentives announced in 2021 coaxed only Quebecor, which already had a thriving wireless business in Quebec, to expand nationally, and we think Quebecor’s future success will depend on its acquisition of Freedom Mobile, which already operated in complementary provinces. With the scale that the incumbents have come significant cost advantages over all smaller rivals, as they can spread their marketing, overhead, and other fixed costs over comparatively massive subscriber bases.

Nearly all of Telus' wireline footprint is in British Columbia and Alberta, where in both places it is the incumbent local exchange carrier. Telus' primary competitor in those provinces is Shaw, and the two companies address virtually the entire market with similar shares. We see the two companies operating with efficient scale, as hypothetical competitors would be starting from scratch and needing to build a very expensive network to compete. Historically, Telus competed with an inferior network, as its legacy copper network couldn't’t compare to the speed and quality of the hybrid fiber-coax network of Shaw. However, Telus has now upgraded most of its footprint with fiber to the home. Apart from the speed and the higher-quality service, FTTH has several advantages for Telus, including lower operating expenses due to less maintenance and customer calls, lower churn rates, and higher average revenue per user. We expect improved margins and a diminished cost disadvantage relative to Shaw over the next few years, and we think Telus has positioned its network as an even stronger competitor.

The biggest factor keeping us from labeling Telus a wide-moat company is the ever-present threat of further regulation in the telecom industry. Management itself has stated that historically, onerous government intervention has been more problematic than competition from other companies. Telecom services are sometimes viewed as public utilities (a classification that the U.S. government used regarding broadband internet when it was defending net neutrality), and the government tends to keep a watchful eye over service offerings, competition, and network requirements. In the wireless space, the government seemingly favors more robust competition for the top three providers, as evidenced by it historically giving other competitors favored status in spectrum auctions, and it has mandated minimal levels of service offerings with a capped price for national providers. In wireline, we believe the Canadian government views broadband as a public good to some extent, which leaves a threat of things like price caps, mandatory network sharing, or other means of enhancing competition. With that in mind, we cannot assume that the environment that the firm has historically navigated will persist, and our level of confidence in long-term projections is tempered by the industry's sensitivity to government influence.

Narrow

Economic Moat

TELUS

Public Mobile is a self-serve, prepaid Canadian mobile brand which is owned by Telus.Launched on March 18, 2010, Public Mobile was one of several new Canadian cellphone providers that started in 2009–10 after a federal government initiative to encourage competition in the wireless sector.

Public Mobile

Koodo Mobile is a Canadian mobile flanker brand started by Telus in 2008 and mostly oriented toward younger customers. Koodo differs from its parent Telus by not requiring a fixed term contract. Koodo currently provides postpaid and prepaid services. Being a subsidiary of Telus, Koodo has been able to offer extensive coverage and a strong presence in mobile retailers. This allowed Koodo to gain a presence nationwide.

Koodo Mobile

TELUS Corp. is a telecommunications company, which engages in the provision of telecommunication services and products primarily for wireless and wireline voice and data. It operates through the following segments: TELUS Technology Solutions (TTech) and Digitally-led Customer Experiences–TELUS International (DLCX). The TTech segment includes network revenues and equipment sales arising from mobile technologies, data revenues, healthcare software and technology solutions, voice and other telecommunications services revenues, and equipment sales. The DLCX segment is composed of digital customer experience and digital-enablement transformation solutions, including artificial intelligence and content management solutions, provided by TELUS International. The company was founded on October 4, 1990 and is headquartered in Vancouver, Canada.

Earnings data Q2 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Clorox

Manager Directed Portfolios - iM DBi Managed Futures Strategy ETF

Vanguard Extended Duration Treasury ETF

Fortis

iShares U.S. Consumer Goods ETF

Alliant Energy

Novartis

Northwest Natural Gas

Reckitt Benckiser Group PLC

Schwab US Dividend Equity ETF

Unilever

Vanguard Health Care ETF

WEC Energy Group

The first few months of 2023 could see stocks fall 10% to 23%, and a lot of investors could make disastrous mistakes. Low-volatility high-yield blue-chips are a great way to stay invested and profit from the coming new bull market.

14 High-Yield Blue-Chips Perfect For 2023

TELUS (TU) completes the acquisition of WillowTree to improve its software development capabilities.

TELUS (TU) Concludes WillowTree Acquisition for $1.225B

TELUS International (Cda)

VANCOUVER, British Columbia--( BUSINESS WIRE )--Today, TELUS Corporation (T-TSX; NYSE-TU) and TELUS International (NYSE and TSX: TIXT), a leading digital customer experience innovator that designs, builds and delivers next-generation solutions, including AI and content moderation, for global and disruptive brands, announced the completion of the previously announced acquisition of WillowTree, having met all closing conditions and regulatory approvals. Now rebranded as WillowTree, a TELUS International Company, the premier, full-service digital product provider adds key front-end design and build competencies to TELUS International's fulsome suite of end-to-end capabilities across the full customer experience value chain.

TELUS International completes acquisition of WillowTree, a full-service digital product provider

By the end of 2022, TELUS is expected to have completed 85%-90% of its targeted broadband footprint. In 2023, the company will significantly step down its capital intensity, while simultaneously beginning to reap the rewards of its massive infrastructure investment.

TELUS Corp.: 2023 Is The Year We've Been Waiting For

VANCOUVER, British Columbia, Dec. 16, 2022 (GLOBE NEWSWIRE) -- TELUS Corporation (“TELUS”) today announced that it has acquired, through an indirect, wholly owned subsidiary, an aggregate of 92,419 subordinate voting shares in the capital of TELUS International (Cda) Inc. (“TELUS International”) by way of market purchases over the facilities of the Toronto Stock Exchange and New York Stock Exchange. When added to the 1,322,481 subordinate voting shares acquired in early November 2022, the total of 1,414,900 subordinate voting shares (the “Purchased Shares”) represents more than 2% of the outstanding subordinate voting shares acquired since TELUS' prior early warning report filed June 29, 2022.

TELUS Acquires Additional Shares of TELUS International

TELUS' growth story was all hype and no substance. While we did come off the strong sell ratings we had earlier in the year, the stock did not come close to being a buy the last time we wrote.

TELUS: 5% Yielder Now Heading Closer To Buy Point

Residents of RED Lower Lynn are enjoying a fully connected home experience all while saving money on their energy bills Residents of RED Lower Lynn are enjoying a fully connected home experience all while saving money on their energy bills

TELUS and Adera complete new Smart Building in North Vancouver

With its Customers First approach, TELUS commits to working towards zero complaints With its Customers First approach, TELUS commits to working towards zero complaints

TELUS leads the pack with fewest complaints amongst national carriers for 11th year in a row

TELUS now connects 84,000 Indigenous people to its lightening-fast PureFibre network across 240 Indigenous communities

TELUS launches fourth annual Indigenous Reconciliation & Connectivity Report

TELUS (TU) third-quarter performance boosted by high service revenue in TELUS technology solutions and TELUS International.

TELUS (TU) Q3 Earnings & Revenues Top Estimates, Increase Y/Y

AT&T

TELUS Corporation (NYSE:TU ) Q3 2022 Earnings Conference Call November 4, 2022 10:30 AM ET Company Participants Jason Mayr - Senior Director, Investor Relations, and Treasurer Jeff Puritt - President and Chief Executive Officer Vanessa Kanu - Chief Financial Officer Conference Call Participants Ramsey El-Assal - Barclays Tien-Tsin Huang - JPMorgan Stephanie Price - CIBC Capital Markets Divya Goyal - Scotiabank Jesse Wilson - William Blair Keith Bachman - BMO Capital Markets Daniel Perlin - RBC Capital Markets Richard Tse - National Bank Financial Daniel Chan - TD Securities Ryan Potter - Citigroup Operator Good morning, ladies and gentlemen. Welcome to the TELUS International Third Quarter 2022 Investor Call.

TELUS Corporation (TU) Q3 2022 Earnings Call Transcript

Telus (TU) delivered earnings and revenue surprises of 4% and 1.93%, respectively, for the quarter ended September 2022. Do the numbers hold clues to what lies ahead for the stock?

Telus (TU) Q3 Earnings and Revenues Beat Estimates

VANCOUVER, British Columbia, Nov. 04, 2022 (GLOBE NEWSWIRE) -- NOTICE IS HEREBY GIVEN that the Board of Directors has declared a quarterly dividend of $0.3511 Canadian per share on the issued and outstanding Common shares payable on January 3, 2023 to shareholders of record at the close of business on December 9, 2022.

TELUS Corporation Notice of Cash Dividend

VANCOUVER, British Columbia--(BUSINESS WIRE)--TELUS International (NYSE and TSX: TIXT), a leading digital customer experience innovator that designs, builds, and delivers next-generation solutions, including AI and content moderation, for global and disruptive brands, today released its results for the quarter ended September 30, 2022.

TELUS International reports third quarter 2022 results, delivering strong double-digit profitability growth and robust cash flow

Industry-leading total Mobile and Fixed customer growth of 347,000, up 27,000 over last year, and our strongest quarter on record, driven by higher year-over-year customer growth across our portfolio of leading Mobility and Fixed services

TELUS reports strong operational and financial results for third quarter 2022

Telus (TU) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Should You Buy Telus (TU) Ahead of Earnings?

Expanding TELUS Mobility for Good program with new partners Native Child and Family Services of Toronto (NCFST) and Native Women's Resource Centre of Toronto (NWRCT) Expanding TELUS Mobility for Good program with new partners Native Child and Family Services of Toronto (NCFST) and Native Women's Resource Centre of Toronto (NWRCT)

TELUS to provide free smartphones and wireless services in Ontario to Indigenous women at risk or surviving violence

Comtech Telecommunications

United States Cellular

USM, TU and CMTL are poised to benefit from higher demand for scalable infrastructure for seamless connectivity amid a wide proliferation of IoT and a steady pace of 5G rollout.

3 Telecom Stocks Likely to Surpass Q3 Earnings Estimates

Recipients each receive a $7,000 prize pack and were identified as part of a nationwide call out to nominate youth who are creating long-lasting change in their communities Recipients each receive a $7,000 prize pack and were identified as part of a nationwide call out to nominate youth who are creating long-lasting change in their communities

TELUS awards seven young leaders in inaugural Friendly Future Makers Awards

Telus (TU) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Telus (TU) to Report Q3 Results: Wall Street Expects Earnings Growth

VANCOUVER, British Columbia--(BUSINESS WIRE)--Today, TELUS Corporation (T-TSX; NYSE-TU) and TELUS International (NYSE and TSX: TIXT), a leading digital customer experience innovator that designs, builds and delivers next-generation solutions, including AI and content moderation, for global and disruptive brands, are pleased to announce a definitive agreement to acquire WillowTree, a premier, full-service digital product provider focused on end user experiences, such as native mobile application

TELUS International announces agreement to acquire WillowTree, a full-service digital product provider

Now complete, the build connects more than 13,000 homes and 2,000 businesses in Leduc to TELUS' PureFibre network, the only 100 per cent fibre to the home network in Western Canada Now complete, the build connects more than 13,000 homes and 2,000 businesses in Leduc to TELUS' PureFibre network, the only 100 per cent fibre to the home network in Western Canada

TELUS completes PureFibre build in Leduc, dramatically increasing wireless and Internet speeds throughout the city

TELUS wins Sustainability Excellence Award in recognition of its global leadership in driving positive social and environmental change with an additional bronze win for the Global Good Awards for Company of the Year

TELUS takes top honours at 2022 World Sustainability and Global Good Awards

TELUS posted median download speeds of 76.03 Mbps in latest US-based Ookla Speedtest Global Index report

TELUS continues to deliver the fastest mobile network in Canada

To celebrate Small Business Month, TELUS Business' launch of online platform will help Canadians shop local

News for TELUS Stock (TU)