TELUS International is heading back to $35, this National Bank analyst says

Investors looking for a growth name in tech that’s also a very disciplined capital allocator should be thinking about TELUS International (TELUS International Stock Quote, Charts, News, Analysts, Financials NYSE:TIXT), according to National Bank Financial analyst Richard Tse, who published on Tuesday a new report on the company where he reiterated an “Outperform” rating and $35.00 target price.

National Bank participated in investor meetings on Tuesday with TIXT CFO Vanessa Kanu and Senior Director of Investor Relations and Treasurer Jason Mayr, with Tse coming away from the meetings with a reinforced opinion on the company. 

“Our biggest takeaway was that this name is likely one of the most disciplined capital allocators (operators) among our high-growth names. Additionally, while short-term sentiment shifts can occur via macro or perceived challenges with select customers as we saw late last year, we increasingly see those events as opportunities in the stock,” Tse wrote.

TELUS International is a communications and information technology company with solutions in digital experience, customer experience, IT lifecycle, advisory services, trust, safety and security as well as back office and automation.

The company reported fourth quarter and full-year 2022 revenue in early February, showing Q4 revenue up five per cent to $630 million and adjusted EBITDA up ten per cent to $157 million. For the full year, revenue was up 12 per cent to $2,468 million and adjusted EBITDA was also up 12 per cent to $607 million. (All figures in US dollars.)

Tse sees further progress in upcoming years and is forecasting revenue to hit $3,000.0 million in 2023 and then $3,416.5 million in 2024, with EBITDA heading to $711.0 million in 2023 and to $848.9 million in 2024.

Tse said TELUS International has been able to focus its efforts on outsized growth segments of the IT Services market while at the same time showing clear operating prowess and discipline with capital to support a resilient value base. Tse said despite the volatility inherent to the newer, growth markets of IT, the company has been able to generate ten to 12 per cent organic revenue growth and close to 24 per cent EBITDA margins while at the same time diversifying its product mix.

“We continue to see TELUS International as a high-quality IT Service name. While the market backdrop may present some short-term challenges (like elongated sales cycles – reflected in the outlook), we continue to believe the Company is on an outsized growth trajectory,” Tse wrote.

Last year, TIXT shares returned negative 40 per cent, while so far in 2023 the stock is up about eight per cent. At press time, Tse’s $35.00 target represented a projected one-year return of 64.2 per cent.