Take a chunk off the top, that’s the advice to shareholders from portfolio manager Varun Anand on Telus Corp (Telus Corp Stock Quote, Charts, News, Analysts, Financials TSX:T), a stock which has rewarded investors handsomely over the past year.
Canadian telecommunications company Telus has seen its share price head higher as the market looks for safe places to park money during the current volatile period. The impact on defensive spaces like utilities hasn’t been across-the-board positive, and the Canadian telcos like Telus, BCE (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) and Rogers Communications (Rogers Communications Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B) were, over the first year of the pandemic, not all that hot, more or less treading water over 2020.
But last year was a different story, with BCE returning 21 per cent, Telus up 18 per cent and Rogers up two per cent — not amazing numbers but overall quite good for these slow-moving stocks which already come with better than average dividends.
For Telus, 2022 has also been just as good if not better, as the stock has gone from $29.79 at the close of 2021 to now about $32.50 for a year-to-date return of nine per cent. Again, not incredible but much better than the overall S&P/TSX Composite, which is currently flat for the year, and also looking fine when paired with Telus’ 4.0 per cent dividend yield.
Momentum definitely has its role in the market but investors may be asking themselves whether there’s a upper limit to Telus’ recent success, and for his part, Anand’s response is a resounding affirmative.
“It’s not forever, right? No stock goes up indefinitely, and Telus has had a good run, along with some other carriers globally,” said Anand, vice president and senior portfolio manager at Starlight Capital, who spoke on BNN Bloomberg on Wednesday.
“What I would say is that at this point — and again, it’s all [about] your personal situation — but I would diversify a little bit away from Telus and own some of the towers. What we’ve seen is that the towers have actually sold off materially versus carriers which have actually held up quite well,” he said.
“And when you look at the growth for this sector in general, if the carriers are doing well that implies that the towers are going to do well because they need to put their equipment on the towers to build up their network,” he said.
Similarly to the telcos just mentioned, cell tower companies like American Tower (American Tower Stock Quote, Charts, News, Analysts, Financials NYSE: AMT), SBA Communications (SBA Communications Stock Quote, Charts, News, Analysts, Financials NASDAQ:SBAC) and Crown Castle International (Crown Castle International Stock Quote, Charts, News, Analysts, Financials NYSE:CCI) fared rather poorly over the earlier stretch of the pandemic but came on stronger over the mid-stretch of 2021.
But the last few months have seen a drop in stocks across the data centre and tower space, making for a potential opportunity for investors, according to Anand.
“This disconnect [between telecommunication carriers and cell tower companies] is really been driven by interest rate sensitivity rather than fundamentals. So if I was [a Telus shareholder] I’d maybe take half of that position and rotate it into something like American Tower, SBAC or CCI, which have sold off quite a bit in response to interest rate sensitivity and have compelling valuations right now,” Anand said.
Telus has seen a nice lift since the company reported earnings last month, where the company delivered more or less in-line results for its fourth quarter 2021. Telus his $4.87 billion in revenue, up 20 per cent from a year earlier, and adjusted earnings of $0.23 per share compared to $0.22 per share a year ago. Analysts had been expecting $4.41 billion in revenue and EPS of $0.25 per share, while the results were in-line with the company’s guidance.
Telus had its best fourth quarter on record for customer growth at 272,000 gained in mobile and fixed customers. Net additions were 112,000 in mobile phones and 79,000 in wireline adds.
“Our performance in the fourth quarter, and for the full year, was characterized by our hallmark combination of robust, high-quality and profitable customer growth, alongside strong financial results. The quarter concluded another year of industry-leading customer growth, with all-time record total net customer additions of 960,000, including another best-ever year for Fixed customer growth of 255,000 reflecting the potency of our expansive PureFibre network capabilities,” said President and CEO Darren Entwistle in a February 10 press release.
Like the other Canadian telecoms, Telus has been investing heavily in recent years in building out its infrastructure, notably, on 5G networks, with Telus saying its network now covers 70 per cent of the Canadian population.
But the company also touted its investments and growth in areas outside the mobile and broadband base, with segments such as TELUS International, TELUS Health and TELUS Agriculture.
“Our results are buttressed by our highly differentiated and potent asset mix geared towards high-growth, technology-oriented verticals,” continued Darren. “Earlier [on February 10], TELUS International (TI) announced strong double-digit revenue and profitability growth for the fourth quarter, concluding their first year as a public company with impressive financial results that surpassed their financial targets for 2021.”