Key Morningstar Metrics for Telus
- Fair Value Estimate: C$30.00
- Morningstar Rating: ★★★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Low
What We Thought of Telus’s Earnings
Telus T posted healthy first-quarter results. Revenue improved 3% yearly, while consolidated EBITDA expanded 6% as the firm added its fair share of subscribers across its wireless and wireline networks. Additionally, cost management has supported healthy margin growth as stiff competition persists.
Why it matters: Telus continues to drive impressive telecom results amid a challenging Canadian landscape, which is experiencing slowing immigration and increased competition as Quebecor pushes to become a national wireless player.
- Wireless service revenue declined 1% in the period, as a 4% decline in average revenue per user offset a respectable 20,000 net customer additions during the quarter. Wireline revenue expanded 2% on the back of an impressive 50,000 customer additions, including 21,000 broadband customers.
- Telus is unique among its competitors, with its Telus Digital, telehealth, and agriculture businesses, each of which helps insulate the firm from a competitive telecom landscape and provides an additional layer of growth. Telus Health led the way with 12% year-over-year growth.
The bottom line: We raise our fair value estimate for Telus to C$30 per share, as we’ve increased our near-term revenue outlook for Telus Health, which continues to deliver impressive results.
- Adjusted EBITDA margin of 36.3% in the first quarter was down slightly from last year but a healthy start to the year. We forecast 39% margins by 2029, as its noncore telecom businesses continue to scale and drive value.
- Although we don’t think its noncore businesses enhance narrow-moat Telus’ competitive positioning, at a time of intense competition, we appreciate the diversification effects and the runway for growth and margin improvement they provide.
Long view: Capital spending of C$587 million was down 19% year over year and equated to 13% of sales, down from 17% last year. After a long period of fiber network upgrades, Telus is now positioned to focus on free cash flow.
