National Bank Financial analyst Richard Tse on Thursday launched coverage of Telus International (Telus International Stock Quote, Chart, News, Analysts, Financials NYSE:TIXT), saying the Telus spinoff is well-positioned in the global IT Services sector. Telus International\u2019s share price has been up and down since its IPO debut in February, but Tse thinks there\u2019s plenty of upside, rating TIXT as \u201cOutperform\u201d and setting a one-year target price of $40.00, which at the time of publication represented a projected return of 34.8 per cent. (All figures in US dollars.) Telus International offers services covering digital transformation solutions, digital strategy and consulting and customer experience solutions, with currently over 600 customers across over 20 countries worldwide and serviced by 50 global delivery centres. The company generates revenue through multi-year service contracts with performance obligations attached and fees based on a per productive hour or per transaction basis. Over its most recently reported quarter, Telus International\u2019s Q1 2021, delivered on May 7, the company posted $505 million in revenue, up 57 per cent year-over-year and adjusted EBITDA of $129 million, up 90 per cent year-over-year. Management says it\u2019s seeing increased demand for its services and is being boosted by ongoing digital transformation tailwinds globally. \u201cOur consistent focus on partnering with substantial, sustainable business customers rather than seeking short-term pandemic-driven opportunities, positions us well for a meaningful growth trajectory over the near, medium and longer term,\u201d said President and CEO Jeff Puritt in the first quarter press release. \u201cThis quarter, we enjoyed notable new client wins for digital solutions and content moderation services, and growth across all key verticals, particularly in Tech & Games. Our diverse capabilities are already now further strengthened with the acquisition of Lionbridge AI. This integration is progressing well and we are confident in our ability to realize the full potential of this next-gen offering, amplified by our adjacent digital capabilities that create a unique competitive advantage relative to other data annotation providers,\u201d Puritt said. For his part, Tse said he likes Telus International's place in the outsized growth market in the Customer Experience segment of IT Services. As Tse explains in his report, global IT Services has split over the past ten years into a number of segments including consulting, engineering and software development, systems integration, infrastructure managed services and business process outsourcing (BPO), which covers functions like HR, finance and customer experience management and is where Tse sees Telus International positioned for growth. \u201cThe fact is that business processes and our interactions are becoming increasingly digital. And while there are some obvious differences in how to support experiences across digital interactions, there are some not so obvious challenges and opportunities that come from that shift, from instilling confidence that the digital content can be trusted to surfacing insight from the digital data that\u2019s generated,\u201d Tse wrote. \u201cRegardless of what those incremental services could be we believe the shift to digital is not abating and if anything, we think it could be accelerating, creating ample opportunity for companies providing services within that big secular shift,\u201d he said. Tse said Telus International has been able to leverage its roots in the IT Services market as a former part of telco Telus where it over time honed and fortified its offerings. The analyst said his investment thesis rests on three factors: Telus International\u2019s focus on a higher-growth segment of IT Services in customer experience, its competitive edge and innovation within that space and outsized growth relative to the sector where the company has grown at a CAGR of 40 per cent including acquisitions over the past three years. On its growth prospects, Tse estimated Telus International\u2019s TAM at $40.5 billion, comprised of customer experience management ($38 billion), content moderation ($1.9 billion) and data annotation ($490 million), while the analyst sees both organic and acquisitive growth within Telus International\u2019s future. \u201cFrom a growth standpoint, we see multiple levers within and incremental to Telus International\u2019s business service contract business model as noted above,\u201d Tse wrote. \u201cThe most obvious of course is to continue to build its client base, while concurrently increasing ACV (Annual Contract Value) by Cross\/Upselling.\u201d \u201cIn our view, by targeting high-growth verticals such as Technology & Gaming, e-Commerce & FinTech as well as Communications & Media, that should provide that high relative growth foundation,\u201d he said. \u201cIf that weren\u2019t enough, we also see a compelling opportunity outside those high-growth verticals. Clients outside of the previously mentioned high- growth verticals account for only 20 per cent of revenue. We believe as companies accelerate their digital transformation plans on the other side of the pandemic, many of those clients, which represent the \u2018old economy,\u2019 can benefit from Telus International\u2019s expertise,\u201d Tse wrote. By the numbers, Tse is calling for Telus International to deliver 2021 and 2022 revenue of $2.171 billion and $2.545 billion, respectively, and 2021 and 2022 adjusted EBTIDA of $533 million and $642 million, respectively.