Telus Earnings: Non-Telecom Businesses Drive Horrid Results and Outlook

Key Morningstar Metrics for Telus

• Fair Value Estimate
  : C$20.00
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Low

What We Thought of Telus’ Earnings

Telus’ T telecom business had a decent second quarter. However, Telus Health growth slowed dramatically, and Telus Digital’s performance was even worse. The firm took an impairment, cut its dividend by 55%, and materially lowered its 2026 financial outlook.

Why it matters: About 25% of Telus’ total revenue comes from outside telecom, which has helped it grow faster than its peers, but we’re concerned the party is over.

• Telus Digital operating revenue and adjusted EBITDA declined 10% and 19%, respectively, year over year. Sales have now declined in two straight quarters after growing nearly 10% last year, and the adjusted EBITDA margin has been below 10% in three of the past four quarters, after having gradually contracted from 30% in 2019.
• The operating pressure resulted from losing client business across multiple solutions. We are not confident that this business will turn around, as many of the services it provides are those most suitable for artificial intelligence disruption.

The bottom line: We reduce our fair value estimate to C$20 per share from C$30, due mostly to a dramatically reduced forecast for Telus Digital.

• The company did not offer much detail on why Telus Health growth slowed to 3%. However, the number of customers it serves declined by 6%, which is also concerning and led us to dramatically reduce our growth outlook for this unit, as well.

Key stats: Telecom results modestly exceeded our low expectations amid the industry slowdown of the past couple of years. Sales were down 1%, with equipment sales and landline phone service the only weak spots. The adjusted EBITDA margin expanded by more than 1 percentage point.

• Mobile network revenue rose more than 1% year over year, as the firm added 17,000 net subscribers, and average revenue per subscriber declined less than 0.5%, an improvement from recent quarters.
• Fixed network revenue was up just under 0.5%, with a drag from lower business revenue, while the firm added 20,000 internet customers.