Telus is “exceptionally well managed”, Echelon says

After its latest quarterly results, Echelon Wealth Partners analyst Rob Goff is staying bullish on Canadian telecom play Telus (Telus Stock Quote, News, Chart TSX:T).

In an update to clients on Tuesday, Goff maintained his “Buy” rating and upped his target price to $54.00 (previously $53.00).

Last Friday, Telus reported its second quarter 2019 financials, coming in with revenue of $3.597 billion, a 4.2-per-cent year-over-year increase, adjusted EBITDA of $1.402 billion, a 9.0 per cent year-over-year increase, and EPS of $0.69 per share, which was down $0.01 year-over-year.

Goff was calling for revenue, adjusted EBITDA and EPS of $3.578 billion, $1.374 billion and $0.65 per share, respectively, while the street consensus was $3.566 billion, $1.401 billion and $0.72 per share, respectively.

Goff noted that Telus management confirmed its guidance for 2019, while the company’s broadband segment continues to impress with fibre penetration hitting 64 per cent of the Optic footprint and likely moving towards 70 per cent by year end. The analyst says that he’s remaining positive on Telus’ wireline segment which continues to report strong financial and improving subscriber trending while its product roadmap is taking on greater clarity in a 5G, fibre rich Internet of Things, connected home scenario.

Telus stock ranked below Shaw’s in Goff’s estimation…

“We continue to see TELUS as an exceptionally well managed provider leveraged to our longer-term bullish wireless and wired outlooks,” writes Goff. “We see continued delivery of its 7-10 per cent annual dividend growth and implied FCF growth over the longer term as strong value. On a near- and mid-term basis Shaw remains our top pick across the four largest providers where Shaw and TELUS benefit from their wired discipline; however, we see greater near-term leverage from Freedom given current wireless dynamics. This view considers financial momentum along with current valuations.”

In its second quarter, Telus added 82,000 new mobile subscribers, which beat the consensus estimate of about 59,000 and Goff’s estimate of 47,000 new subs. (Telus took in 69,000 new subscribers in its Q2 last year.) The company’s mobile phone customer churn was in line with analysts’ estimates at 1.01 per cent versus Goff’s 1.02 per cent estimate and the consensus 1.01 per cent (last year’s Q2 mobile churn was 0.99 per cent).

Goff is increasing his 2019 projections for revenue, EBITDA and EPS by $20.5 million, $2.8 million and $0.08 per share, respectively, resulting in $14.848 billion, $5.581 billion and $3.00 per share, respectively. His $54.00 target stems from an 8.1x multiple of his EV/2019 EBITDA estimate and represents a projected 12-month return of 17.6 per cent at the time of publication.

Customers are adopting new plans that do not involve overage fees…

Last month, both Telus and BCE followed Rogers Communications in introducing wireless plans that do not involve overage fees which occur when a customer goes over his or her monthly data limits. In its quarterly news release, Telus noted that more than half of customers who have now signed up for one of the new plans have also elected to pay more for that option than they had with their previous plan.

On Tuesday, Telus announced that its home internet customer will also be able to purchase plans without overage charges.