Telus’s acquisition of Mobilicity makes sense, says Byron’s Goff

Byron Capital analyst Rob Goff says he likes Telus’s (Telus Stock Quote, Chart, News: TSX:T) proposed acquisition of Mobilicity.

Yesterday, Telus announced it had entered into an agreement with the struggling upstart carrier to acquire it for $380-million.

Mobilicity, which was founded as DAVE Wireless, entered the Canadian market after a 2008 spectrum auction for AWS frequencies. The company paid $243 million for 10 MHz of AWS spectrum blocks covering southern and eastern Ontario, Calgary, Edmonton and Vancouver.

Telus says if the deal meets regulatory approval it will retain all of Mobilicity’s 150 employees.

Goff says he believes the outlook for the wireless industry is getting better because of consolidation and also because subscriber outlook continues to improve with accelerating data usage. He says this offer is more evidence of Telus management’s execution and tactical strength. Goff notes that the consensus target on Telus is now at $37.89, which implies a 5.3% return. But he believes there will be an upward bias that will result in target revisions in the near future. In a research update to clients this morning, Goff reiterated his BUY rating and $41 one-year target price on Telus.

Goff says he is a strong proponent of Telus’s focus on wireless and data, and says he is encouraged by a wireless exposure that will contribute an estimated 68% of its fiscal 2013 EBITDA. This, he notes, is higher than Rogers Wireless at 64% and much higher than the 29% wireless contributes to BCE’s bottom line.

Goff says he also prefers Telus, because he expects competition will moderate in Western Canada as it heats up in the east.