Telus is becoming a sexy tech story, this investor says 

For decades now it’s been a staid and simple picture presented by Canada’s big telecom companies: investors will be rewarded with rock-solid dividends but practically nil when it comes to growth. And while that scenario seems to hold true at the moment, Telus (Telus Stock Quote, Charts, News, Analysts, Financials TSX:T) is starting to differentiate itself, according to Bill Harris of Avenue Investment Management, who sees a sexy tech story in the making.

“At this point in time we would normally have a teleco [in our portfolio]. We’re looking to see if something rolls off why we would add it back. We usually default to BCE, in that category,” said Harris, partner at Avenue Investment, who spoke on BNN Bloomberg on Friday. 

“Over time, Telus has done extremely well but it’s pretty aggressive in terms of their dividend and capex and they always are sort of gunning it if you’re looking at their financial statements over time,” Harris said.

Telus has been on a tear over the past year, relatively speaking. The stock is up about 21 per cent since last August, a substantial figure for a utility like Telus which has delivered a gain of about 140 per cent over the past ten years, not including the always attractive dividend which currently sports a yield of 4.3 per cent.

That 21 per cent return over the past 12 months compares favourably to rivals BCE (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) and Rogers Communications (Rogers Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B) who have returned about 14 per cent and 18 per cent, respectively, over that time span.

But Harris sees growth potential in Telus, even though the stock may not be a buy at the moment.

“The interesting thing is in this particular window — we think it’s actually already priced into the market, as Telus has done well and it’s priced in — is where BCE and Rogers felt that they had to have content and then you’re selling your content on your platform, Telus has gone out and said that data analysis and AI are going to be part of the future,” Harris said.

“Where the other telecoms have the legacy businesses, Telus is actually a pretty clean company, and where they’re spending that incremental dollar is on big data. So, Telus starts to become a very sexy story, and it will also get a premium valuation for that,” he said.

“But right now, we still find that we’re getting a better value in something like BCE than Telus, but now it’s getting very hard though so it’s almost like Telus has run because of that. [In other words], we’re not touching Telus because it’s expensive, but it’s expensive for a reason,” Harris said.

A recent show of Telus’ tech prowess was spin-off Telus International (Telus International Stock Quote, Charts, News, Analysts, Financials TSX:TIXT), the company’s IT solutions and Customer Experience Management business which went public earlier this year. Telus International already operates in over 20 countries globally with a range of products and services like call centres, app development and digital transformation, with the company having acquired a number of key businesses over the years, including AI data annotation company Lionbridge AI.

In other corners of the tech field, Telus has digital healthcare solutions business Telus Health, which has telehealth and mobile health services along with one of Canada’s largest electronic medical records business, and Telus Agriculture, which offers services such as supply chain management and analytics for the agriculture sector.

“TELUS Agriculture is the latest addition to our unique portfolio of compelling growth assets, which includes TELUS International and TELUS Health and will leverage our team’s expertise in technology and digital transformation,” said Telus President and CEO Darren Entwistle in a press release on November 12, 2020.

“TELUS Agriculture will make a significant contribution to this fast-growing portfolio, driving strong financial and operating performance as well as material shareholder value creation. Moreover, our Agriculture strategy also represents another significant investment in the communities where we live, work and serve, supporting TELUS’ world leadership in social capitalism,” Entwistle said.

Telus is also doing well in terms of its ability to attract and retain customers to its main telco business. For the company’s latest quarter, its Q2 2021, delivered in late July, the company reported 223,000 net new customer additions, best among the Big Three telecoms. Telus added 89,000 new mobile phone customers, 84,000 for connected devices, 30,000 for Internet, 19,000 for security and 11,000 new TV customer connections.

“TELUS’ continued execution excellence, realized against the backdrop of the ongoing global pandemic, was characterized by the consistent combination of industry-leading and profitable customer growth, yielding strong financial results across our business as evidenced by ten per cent consolidated revenue and EBITDA growth,” said Entwistle in a July 30 press release. 

“This robust performance reflects the effectiveness of our globally leading customer-centric culture and broadband networks, underpinned by our highly engaged team and their dedication and passion for delivering outstanding connected experiences,” he said.

For the quarter, Telus’ operating revenues were up 10.3 per cent year-over-year to $4.111 billion and adjusted EBITDA rose 9.5 per cent to $1.490 billion.