Investor are starting to value Telus for its non-telecom businesses
Compared to the other national carriers, the company has multiple pathways to growth
The stock: Like Canada’s other major telecoms, Telus Corp. (TSX:T) has been sleepily range-bound the past few years. As long as they tempered their expectations for capital gains, investors could rest easy knowing the stock would hold up in a market downturn and keep on collecting that sweet 4-plus-percent dividend. Recent weeks, however, have seen T rise from its slumber to upward of $28 a share. (Disclosure: Your faithful columnist owns this stock.)
The drivers: There was nearly a decade there, when smartphones were still new and average revenue per customer rose every year, that Steady Eddie telecoms like Telus became a growth sector. That’s played out; customers today have high expectations for service and are constantly looking to cut their bills. So the mainline business of providing phone, internet and television service is back to being a commodity subject to tighter margins.
But whereas rivals Rogers Communications (TSX:RCI.B) and BCE (TSX:BCE) diversified into sports and media properties—both sectors that suffered under COVID—Telus has branched out into sunrise industries such as customer service technology (Telus International), digital health services (Telus Health) and digital optimization for farmers (Telus Agriculture). The spinoff of Telus International (TSX:TIXT) in February awakened investors to the possibility of multiple value-creating spinoffs spreading their wings in the future.
Telus’s performance in its mainline business in the second quarter, reported last week, hasn’t been too shabby, either. Revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) were both up 10 percent year-over-year, and the company’s 89,000 net new wireless customers offered evidence of improving market share. The bottom line should improve further once international travel resumes—and with it, roaming charges.
Word on the street: “Telus remains our best idea in Canadian telecom,” say RBC Dominion Securities analysts Drew McReynolds and Riley Gray, who have a $31 target for the stock. The company’s latest quarter surprised on the upside, they added in an update to clients, and the sidelines in health and agriculture are starting to “crystallize” into meaningful contributors to the company’s valuation.
Coming and going: Reconnaissance Energy Africa (TSXV:RECO), which we looked at in April, completed an all-share takeover of fellow Vancouver petroleum player Renaissance Oil Corp. (TSXV:ROE) on July 27. With the deal, ReconAfrica acquires Renaissance’s option on a property near its own area of operations in the Kavango Basin of Botswana and Namibia, along with operating wells in Mexico.