Telus is the best buy among Canada’s Three Big telecom companies, Mike Newton says

Like the other two of Canada’s three big telecom companies, shares of Telus Corp. (Telus Stock Quote, Chart, News: TSX:T) is well off its high of late last year.

But with management calling for strong growth over the rest of 2018, even in the face of rising interest rates, Telus is the right call, says Mike Newton of Scotia Wealth Management.

Telus had an impressive back end to 2017, rising from $43.00 a share in early September to a high of $48.94 by November 27. Since then things have been less rosy, with the share price currently languishing in the $45-$46 range.

Newton says that Telus’ better looking balance sheet is what will likely set it apart from BCE and Rogers.

“It’s our number one pick of the big three telcos,” says Newton, portfolio manager and director at Scotia Wealth, to BNN Bloomberg. “The argument that our analyst makes is that their capital expenditure peaked at about mid-2017 and then they had that massive migration bringing in subscribers from [Bell MTS], the Manitoba Telecom Services base.”

“With their big, big peak of capex nine to twelve months behind us versus, say, Bell or Rogers, their free cash flow should be fairly strong and unencumbered going forward,” says Newton. “Guidance on their conference call was five to six per cent, with seven per cent EBITDA growth, so great numbers for what many people consider a mature and completely developed market.”

The current climate of rising interest rates is said to be troubling for dividend stocks such as banks and telecom companies since rate hikes can make guaranteed income investments such as GICs seem more attractive, along with higher interest rates having an impact on a company’s cost of borrowing. On that front, Telus looks to be the winner, says Newton.

“If Telus has the highest free cash flow because of capex expenditure, the better their ability to make sure that their balance sheet is pristine,” says Newton. “So if rates are rising, they might come out of it a little better than the other two.”

In February, Telus reported a fourth quarter 2017 profit of $282 million on revenues of almost $3.47 billion, an improvement of five per cent compared to Q4 of 2016. The company said that over Q4 they added 121,000 wireless postpaid customers, 21,000 high-speed internet subscribers and 14,000 Telus TV customers.

Telus’ first quarter 2018 financial report is due on May 10.