Telus is a no-brainer investment, this fund manager says

Canadian telecom stocks had a tough 2020 but investors looking to get into the space this year should really be thinking about Telus (Telus Stock Quote, Chart, News, Analysts, Financials TSX:T). That’s according to Stephen Takacsy, president and CEO of Lester Asset Management, who likes the look of Telus’ new spinoff IPO.

“Telus is a long-term, core holding for us,” said Takacsy, speaking on BNN Bloomberg on Monday. “It’s one of the best managed companies in Canada, we believe, and you can see the value creation over a long period of time. A very shareholder friendly company, they’re in a great business and their core business in Western Canada with limited competition on the wireless side.”

“[Telus President and CEO] Darren Entwistle has done a great job by investing more in technology than in media properties, which some of his peers have done. And we’re starting to see the fruits of those labours today with the spinoff of TELUS International, and that’s creating shareholder value,” Takacsy said.

Telus announced on Monday the launch of a roadshow for the upcoming IPO of Telus International, the company’s digital customer experience solutions business. Scheduled to begin trading on the NYSE and TSX by the end of March, Telus International is offering 33.33 million subordinate voting shares including 21.93 million from its treasury and 11.4 million from owners Telus and Baring Private Equity. The subsidiary is looking to raise about $494 million through the sale at a price between $23 and $25 per share. (All figures in US dollars except where noted otherwise.)

Telus International, which has clients such as PayPal, MasterCard, Fitbit, game company Zynga as well as Google and Telus Corp, had revenue over $1 billion in 2019 and between $95 and $102 million in net income last year. This past November, Telus International announced an agreement to acquire Lionbridge AI, a training data and data annotation services provider, for C$1.2 billion.

Telus also announced on Monday preliminary numbers for Telus International’s fourth quarter 2020, where the company is estimated to have revenues arising from contracts with customers of between $430 and $445 million and net income between $13 and $20 million, which would compare to Q4 2019’s revenue and net income at $272.5 million and $27.3 million, respectively. For the full 2020 year, Telus International is expected to have revenue between $1.569 billion and $1.584 billion compared to 2019’s $1.0196 billion.

Telus itself has been on the upswing for a while now, having clawed back almost all of the ground lost in last year’s market pullback of February and March. Telus finished 2020 at even and is up almost seven per cent so far in 2021. That’s a lot better than its competitors in Canada’s Big Three telcos, BCE and Rogers, who finished last year down nine per cent and eight per cent, respectively.

Takacsy says investors not only get Telus’ growth prospects with its various tech-related businesses, the company’s dividend is solid, currently boasting a 4.6-per-cent yield.

“The stock is really not expensive and you’ve got a great, safe and growing dividend,” Takacsy said. “[Telus management] is always looking to create shareholder value, whether it’s through share buybacks and so on. So, I would not hesitate to buy shares at this price and just hold them for a long period of time.”

“They really know how to maximize their balance sheet in a prudent manner and their core business is great: wireless growth, broadband growth, Internet and limited competition in the western part of the country where it’s basically them against Shaw,” he said.

“And this international business has created value for shareholders, and they’re retaining an interest and that can continue to gain in value as well,” Takacsy said.

Telus itself last reported earnings in early November where its third quarter featured revenue beating analysts’ estimates, coming in at C$3.98 billion compared to C$3.70 billion a year earlier and the consensus call for C$3.82 billion. Net income was C$356 million or C$0.28 per share compared to C$458 million or C$0.39 per share a year earlier and compared to the Street’s estimate at C$0.31 per share.

“Leveraging our best-in-class customer service and strong digital capabilities, we continued to achieve robust customer growth in the quarter, including 111,000 high-quality mobile phone net additions and 79,000 wireline customer additions, driven by 50,000 internet, 19,000 TV and 18,000 security net additions, in addition to the lowest residential voice net losses since 2004,” said Entwistle in a November 6 press release.

“This was supported by strong and enhanced customer loyalty across our key product lines, including blended mobile phone and internet churn both below one per cent, and TV churn of one per cent, backed by our world-leading wireless and fibre broadband networks,” he said.