TELUS Corporation (TSE:T) 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 ~15 million customer connections, including 10.6 million wireless subscribers, 2.1 million Internet subscribers, 1.2 million residential network access lines, and 1.2 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%. 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: 68
- Ticker: TSE:T
- Sector: Communication Services
- Industry: Telecommunication Services
- Market Cap: 25.99B
- P/E: 27.00
- Dividend Yield: 4.88%
- Payout Ratio (Earnings): 132.43%
- Canadian Dividend Aristocrat: YES
- 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. The company has industry-leading wireless churn rates of below 1% which is an important metric to measure sticky customer relations. 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 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 has fee service offerings along with bundling options which support sustainable customer growth. It also has a robust digital adoption and more online transactions YoY. The company is better positioned for 5G technology and a wider residential scope with its pure fiber now covering 78% of its high-speed broadband footprint.
TELUS also has a strong presence in the personal, business and healthcare segments which provides a diversified stream of income and has expanded into agricultural technological solutions.
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 became a leading revenue generator in the current times.
TELUS witnessed customer growth of 277,000 net additions for combined wireless and wireline loading in the latest quarter. Throughout the pandemic, it witnessed higher traffic volumes on its network and increased demand for virtual care solutions in its health business.
The company registered a revenue growth of over 7% YoY but EBITDA declined by 0.6%. It experienced declines in wireline legacy voice and data services and higher employee benefits costs as an impact of COVID-19 impact. It also announced the acquisition of Lionbridge AI as well as AFS Technologies which should support TELUS’ long-term growth trajectory.
The company had guided revenue and EBITDA growth of up to 8% and 7%, respectively for 2020 prior to the pandemic. EBITDA growth was, however, reduced by COVID-19 pandemic impacts.
TELUS has increased its dividend consecutively since 2002, growing it at a rate of 9% CAGR over the past decade. This Canadian Dividend Aristocrat has returned close to $19 billion to its shareholders since 2004.
The company has a dividend yield of 4.7% and its last dividend hike was ~7%, making it the 19th increase since 2011. The company is targeting 7%-10% annual dividend increases through 2022, as a part of its multi-year dividend growth program which is in its 10th year. It resumed its multi-year dividend growth program in the latest quarter, supported by a robust capital structure and healthy cash flow generation.
Though TELUS has a high payout ratio, recession-proof cash flows should support its dividend plan. The company is targeting free cash flow payout ratio of 60% to 75%.
TELUS continues to make investments towards network upgrades and expanding its 5G network. 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.
TELUS’s 5G network covered almost 20% of Canada’s population at September 30, 2020. The company expects that nearly 50 communities will be able to experience TELUS 5G connectivity by the end of this year.
Since TELUS is one of the largest telecom companies in Canada, it enjoys a regular stream of strong cash flows. The company should continue its growth streak on the back of broadband technology investments, strong asset mix focused on wireless and data, and a long-term focused growth strategy. Decent earnings growth along with moderate capex should support free cash flows and the multiyear dividend growth program.
TELUS operates in a highly competitive landscape. The Canadian telecommunication sector is an oligopoly dominated by three big players – TELUS, Rogers Communications and BCE.
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 with deep enough pockets to keep at it. Not having legacy media assets and having Health and International businesses instead, qualify as strong competitive advantages for Telus.
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|TSE:BCE||BCE||BCE||Communication Services||Telecommunication Services||0.62||54.43||38.99||21.59||21.59||2.52||0.0643||6.43||1.3889||4||3.50||0.1154||6||8||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:T||T||Telus||Communication Services||Telecommunication Services||0.68||25.50||25.99||27.00||27.00||0.94||0.0488||4.88||1.3243||4||1.25||0.1186||7||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1|
|TSE:RCI.B||RCI.B||Rogers||Communication Services||Telecommunication Services||0.49||55.13||22.06||17.52||17.52||3.15||0.0363||3.63||0.6349||4||2.00||0.0500||2||4||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:SJR.B||SJR.B||Shaw Communications||Communication Services||Telecommunication Services||0.50||22.15||8.94||16.73||16.73||1.32||0.0535||5.35||0.8977||12||1.19||0.0535||2||5||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1|
|TSE:QBR.B||QBR.B||Quebecor Inc.||Communication Services||Telecommunication Services||0.56||32.90||8.17||14.82||14.82||2.22||0.0334||3.34||0.4955||4||1.10||0.2615||6||4||Tollbooth - Regulated||NO||NO||YES||NO||Canada||1|
|TSE:CCA||CCA||Cogeco Cable Inc||Communication Services||Telecommunication Services||0.64||115.07||5.51||14.05||14.05||8.19||0.0222||2.22||0.3126||4||2.56||0.1264||7||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1|
|TSE:CGO||CGO||Cogeco||Communication Services||Telecommunication Services||0.68||93.38||1.34||10.89||10.89||8.57||0.0233||2.33||0.2544||4||2.18||0.1572||7||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1|
TELUS’s strong performance is supported by customer loyalty across key product lines, including blended mobile phone and internet churn both being below 1%.
The company is well-positioned to gain from the high speed, quality, and coverage of its globally leading 5G and fiber networks. In addition to its broadband growth engine, Telus’ results are strongly supported by its unique TELUS Health, TELUS AgTech and TELUS International businesses.
TELUS continues to make aggressive investments to become a leading digital services company in Canada. Its strong financial position and sustainable free cash flow growth allow it to pursue strategic growth initiatives such as acquisitions and returning cash to shareholders.