TELUS Corporation is the second largest telecom company in Canada, providing a wide range of communications products and services such as data, IP, voice, television, entertainment, and video. The company has 14.5 million customer connections, including 10.2 million wireless subscribers, 1.98 million Internet subscribers, 1.2 million residential network access lines and 1.1 million TELUS TV customers. It is also Canada’s largest digital healthcare provider and has been a major telehealth player for over a decade.
TELUS has a strong presence in the wireless segment which accounts for 55% of total revenue while the wireline segment constitutes the remaining 45%. The company has industry-leading wireless churn rates of below 1% which is an important metric to measure sticky customer relations. Nearly 70% of the total earnings is derived from the wireless segment. The wireline segment comprises data, voice, and other services and equipment. TELUS will replace its current wireline and wireless reportable segments with two new reportable segments, telecommunications inclusive of both wireless and wireline and TELUS International, in the future.
TELUS Corporation is a leading network provider catering to 99% of Canadians with its 4G LTE and HSPA+ technologies. Telus is leading the launch of the next generation of IoT connectivity with LTE-M network. Its 5G ready LTE-M network is now available across Canada.
- Opportunity Score: 69
- Ticker: TSE:T
- Sector: Communication Services
- Industry: Telecommunication Services
- Market Cap: 22.92B
- P/E: 20.10
- Dividend Yield: 4.95%
- Payout Ratio (Earnings): 99.57%
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 7/10
Revenue Growth & Market Exposure
TELUS’ focus on customer service excellence and technology leadership has resulted in the company having customers with one of the highest loyalty rates. Its wide range of innovative products and services powered by leading technologies and innovations have helped in retaining and attracting new customers. The company generates recurring monthly fees from its subscribers which are still increasing in numbers. TELUS should retain its leading market share position in the Canadian telecom industry given its world-class networks, a customer-first approach, and operational efficiency. Its PureFibre broadband network will allow a direct super-fast and reliable connection to homes. Higher wireless network revenue and wireline data services should continue to drive its revenue growth.
TELUS also has a strong presence in the personal, business and healthcare segments which provides a diversified stream of income. TELUS has diversified into the medical record business under Telus Health segment which is the largest of its kind in Canada. The company should leverage its leading innovations and technical know-how to support Canada’s digital healthcare system.
The company is also trying to increase its international footprint as is evident by the inclusion of a new segment capturing its international business. It closed the acquisition of Competence Call Center, a leading provider of high value-added business services, which has expanded TELUS International’s size, scope and reach in 20 countries across North and Central America, Europe, and Asia. The acquisition will be immediately accretive to revenue and EBITDA.
TELUS has fee service offerings along with bundling options which are supporting sustainable customer growth. The company witnessed strong adoption rates with over 50% transitioning to higher monthly plans. It also has a robust digital adoption with 85% more online transactions YoY. The company posted a mobile phone churn rate of 1.2%, which is up to 63 basis points than the blended churn rate of key competitors. TELUS continues to significantly invest in the broadband network. The company is better positioned for 5G technology and a wider residential scope with its pure fiber now covering ~70% of its high-speed broadband footprint and is targeted to achieve 80% coverage by the end of 2020.
TELUS is front runner on the 5G network. The company has, however, partnered with Huawei in Canada which could possibly be banned in the country. It is still unclear whether Huawei will be allowed to roll out 5G in Canada or not, as many countries have banned the Chinese company in building 5G infrastructure. TELUS’s CFO, Doug French has said that “It’s important for us to launch our network when the time is right…”, and the company announced that it will soon roll out its 5G network with Huawei Technologies’ equipment in “nonsensitive” parts of its networks. TELUS also indicated higher costs in setting up the 5G wireless network if the Canadian government banned Huawei.
The Telecom industry is a recession-proof business. Increased broadband data usage at the time of lockdown is a tailwind for TELUS Corp. Unlike most of its peers, Telus does not have a media division, so there is no decline in revenue on account of advertising. Its Health division, on the other hand, is Canada’s leading provider of digital solutions to doctors and hospitals and could be a leading revenue generator at the current times when an increasing number of doctors are resorting to telemedicine. TELUS’s digital healthcare division could drive margins and growth in the near future, as the number of users expands exponentially. The company has guided revenue and EBITDA growth of up to 8% and 7%, respectively for 2020. CapEx is expected to further moderate in 2022.
On the coronavirus front, the company has said that there are no current impacts to its operations currently and it will continue to efficiently manage the increased demand for enhanced capacity.
TELUS has increased its dividend consecutively since 2002, growing it at a rate of 8.6% CAGR over the past decade. This Canadian Dividend Aristocrat has returned close to $18 billion to its shareholders since 2004. The company has a dividend yield of 5.2% and its last dividend hike was ~7%. The company is targeting 7%-10% annual dividend increases in 2020 through 2022, as a part of its multi-year dividend growth program. Though TELUS has a high payout ratio of 80%, recession-proof cash flows should support its dividend plan. The company returned more than one $1.3 billion to shareholders in the last year and is targeting free cash flow payout ratio of 60% to 75%.
5G is the next-generation technology to transform the internet of things and will have a major impact but it will not happen overnight. It will be progressive both in part from the network and the applications leveraging it. But there will be a cost if Huawei is banned and dividend growth might be limited in order to redirect the cash. If timing is delayed and it has a material impact on consumers, the earnings may be lower due to acquisition incentives for capturing the market share again.
Since TELUS is one of the largest telecom companies in Canada, it enjoys a regular stream of strong cash flows. The company is expecting to generate robust free cash flow driven by customer growth and lower capital expenditures. Decent earnings growth along with moderate Capex should support free cash flow growth of up to $2.1 billion before taxes in 2020 and a multiyear dividend growth program, which is in its 10th year.
These three companies have strong marketing power which prevents new entrants from coming into the market. Strong focus on customer growth, continued network investments and improving efficiency should support TELUS in retaining industry leadership. Shaw Communications is the new player in the wireless space and the jury is still out as to the competition it can offer.
|TickerKey||Ticker||Company||Sector||Industry||Score||Quote||Market Cap||P/E||FPE||EPS||Yield Raw||Yield||PayoutRatio||Payments||Dividend||Chowder||GrowthRating||IncomeRating||Tollbooth||Ambassador||Achiever||Aristocrat||King||Country||Graph|
|TSE:BCE||BCE||BCE||Communication Services||Telecommunication Services||0.68||55.50||37.92||20.42||20.42||2.72||0.0600||6.00||1.2243||4||3.33||0.1111||6||8||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:T||T||Telus||Communication Services||Telecommunication Services||0.69||23.52||22.92||20.10||20.10||1.17||0.0495||4.95||0.9957||4||1.17||0.1193||7||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:RCI.B||RCI.B||Rogers||Communication Services||Telecommunication Services||0.47||51.83||20.08||15.61||15.61||3.32||0.0386||3.86||0.6024||4||2.00||0.0523||2||5||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:SJR.B||SJR.B||Shaw Communications||Communication Services||Telecommunication Services||0.45||24.32||9.42||18.81||18.81||1.29||0.0487||4.87||0.9186||12||1.19||0.0487||2||4||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:QBR.B||QBR.B||Quebecor Inc.||Communication Services||Telecommunication Services||0.54||33.17||8.30||14.32||14.32||2.32||0.0241||2.41||0.3448||4||0.80||0.2521||6||4||Tollbooth - Regulated||NO||NO||YES||NO||Canada||1|
|TSE:CCA||CCA||Cogeco Cable Inc||Communication Services||Telecommunication Services||0.65||111.69||5.36||14.72||14.72||7.59||0.0208||2.08||0.3057||4||2.32||0.1249||7||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1|
|TSE:CGO||CGO||Cogeco||Communication Services||Telecommunication Services||0.68||88.94||1.28||11.10||11.10||8.01||0.0214||2.14||0.2372||4||1.90||0.1552||7||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1|
As Canada’s fastest growing telecommunications company, TELUS Corp. is well positioned to benefit from a growing appetite for data. The company is investing heavily to improve its infrastructure and expects the launch of the 5G network to be imminent. TELUS is known for having one of the fastest mobile networks in Canada and should continue its growth streak given broadband technology investments, strong asset mix focused on wireless and data, and a long-term focused growth strategy.
In addition to its broadband growth engine, TELUS’ results are strongly supported by its unique TELUS Health, TELUS AgTech and TELUS International businesses. What separates TELUS from the other telecoms is its diversification into the IT healthcare segment. As the healthcare industry evolves into the connected world with patients, TELUS will be positioned to greatly profit from this investment.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.