Pacific Trader: Will Telus International outgrow its parent?

The growth reported by Telus International Cda. (TSX:TIXT) in its first quarter after being spun out of Telus Corp. (TSX:T) is just too good to ignore.

Credit: Telus International

Telus International is a tech-enabled provider of customer service solutions to companies worldwide

The customer-service spinoff reported a 57-percent jump in revenue for the first quarter

The stock: Investing in companies that have only recently gone public is tricky. You don’t have years of performance data and valuations with which to make comparisons. It gets still more challenging after an economically fraught year like 2020; even some poor performers’ 2021 numbers will look like a big improvement. But the growth reported by Telus International (TSX:TIXT) in its first quarter after being spun out of Telus Corp. (TSX:T) is just too good to ignore. Revenue jumped 57 percent year-over-year. Acquisitions accounted for a big part of that increase, but even organic growth of existing business lines rose 20 percent.

The drivers: Telus International started in 2005 as a division of Telus, with a single customer service centre in Manila, dedicated to digitally enabled customer service—for the mother corp but before long, other clients, too. Today the company, headed since 2008 by Jeff Puritt, has more than 600 customers, among them Google, PayPal, Airbnb and TikTok. It’s digitally enabled but far from automated, with 51,000 employees (more than double the parent company’s head count) in 25 countries.

Though Telus Corp. retains two-thirds of the company’s equity and both firms are headquartered at Telus Garden in downtown Vancouver, the separate listings allow what are really two very different kinds of enterprise to do their own thing. Whereas Telus is a low-volatility, dividend-churning telecom operating almost exclusively in Canada, Telus International is a global growth play for investors with a higher risk tolerance.

Priced at US$25 for its IPO on February 3, TIXT burst out of the gate on its first day of trading; it’s since settled back to around $37 on the TSX (US$31 in New York). That gives it a market cap just under $10 billion. Revenue for 2020 was US$1.6 billion.

Word on the street: “We believe TIXT’s success will be underpinned by several attributes which in our opinion help distinguish the company from the crowd,” writes RBC Capital Markets analyst Daniel Perlin. These include its critical mass of digital solutions, its deep expertise in specific markets (electronic games, e-commerce, fintech), its exposure to the burgeoning data annotation market and management’s history of shrewd strategic M&A.

Coming and going: The board of directors of Richmond-based Photon Control (TSX:PHO), which we profiled in this space in April, has accepted a $387-million takeover offer from MKS Instruments (NASDAQ: MKSI) of Andover, Massachusetts. The all-cash transaction equates to $3.60 per share, a 26-percent premium over Photon’s 30-day volume-weighted price leading up to the announcement. The deal is expected to close in the third quarter of this year. (Shoulda listened, is all we’re sayin’.)