We are bullish on Telus, says Echelon Wealth

The analyst reviewed Telus’ fourth quarter fiscal 2019 results in an update to clients Monday where he reiterated his “Buy” recommendation and gave his new price target of $58.00 (previously $56.00).

Canadian telecommunications company Telus announced its Q4 results on February 13, posting consolidated operating revenue of $3.858 billion and adjusted EBITDA of $1.368 billion, up 2.5 per cent and 10.8 per cent, respectively, year-over-year.

Telus registered 130,000 wireless net additions, including 70,000 high-quality mobile phone additions and 60,000 mobile connected device additions, with a churn rate below one per cent. For the upcoming 2020 year, management has targeted consolidated revenue and EBITDA growth of eight and seven per cent, respectively, with free cash flow forecasted to increase up to $1.7 billion.

“In 2019, TELUS continued its track record of delivering strong and consistent financial and operating results in both wireless and wireline, a trend the TELUS team has demonstrated over the long-term,” said Darren Entwistle, President and CEO, in a press release.

“Both 2019 and the fourth quarter were characterized by profitable growth, with a thoughtful balance between continuing to meaningfully grow our customer base and enhancing profitability. The fourth quarter concluded another year of robust customer growth where we added a leading 713,000 net customer additions, while achieving our annual revenue and EBITDA growth targets for the ninth consecutive year,” Entwistle
added.

Although he maintains his preference for Shaw Communications over Telus among the Canadian telcos, Goff says Telus remains “an exceptionally well managed provider leveraged to our longer-term bullish wireless and wired outlooks.”

“We see continued delivery of its seven to ten per cent annual dividend growth and implied FCF growth over the longer term as a strong value,” Goff wrote. “Shaw and TELUS benefit from our preference for western exposure; however, current valuations support more aggressive returns to our 12-month price target. Shaw further benefits from attacker advantages in wireless at a time of regulatory review. Across the sector, we are encouraged by wired prospects reflecting broadband pricing leverage, a measure of discipline (particularly in the west) and prospects of broader home services and declining capex intensity,” he said.

“Our bullish view looks for TELUS International to add longer-term growth, TELUS Health to add revenues and margins while getting closer to the consumer while security strengthens household relationships and incremental revenues,” Goff said.

Looking ahead, Goff says management’s 2020 guidance ranges are consistent with both its 2019 guidance and expectations. The analyst has added $242 million to his full-year 2020 revenue estimate and has pulled down his EBITDA estimate due to expected restructuring efforts. He is now calling for fiscal 2020 revenue and EBITDA of $15.706 billion and $5.992 billion, respectively.

As of publication, Goff’s new $58.00 target represented a projected 12-month return of 11.0 per cent.