Telus Corp

TELUS Corp (TSX: T) is a fixed-line telecommunications company, offering a variety of products and services including, IoT (Internet of things) solutions, devices, voice, and data in Eastern Quebec, Alberta, and British Columbia. The Company offers CCBS (customer care and business services) to its customers internationally.

Financial Highlights – Decent Operating Performance in Q1 Financial year 2020 (31^st March 2020)

(Source: Quarterly Report, Company Website)

In the first quarter of the financial year 2020, driven by an increase in the revenue from wireline business for the period, the operating revenue surged by 5.4 per cent to CAD 3,694 million as against CAD 3,506 million in Q1 FY2019. The reported EBITDA surged by 2.2 per cent from CAD 1,379 million in Q1 of the financial year 2019 to CAD 1,409 million in Q1 FY2020. The group’s adjusted EBITDA increased by 4.2 per cent to CAD 1,475 million in the first quarter of the financial year 2020 from an adjusted EBITDA of CAD 1,415 million in Q1 FY2019. The net income attributable to shareholders stood at CAD 350 million in Q1 FY2020 versus CAD 428 million in Q1 FY2019, reflecting a decline of 18.2 per cent for the period. The group’s basic earnings per share declined by 22.2 per cent to 0.28 cents in Q1 FY2020 from 0.36 cents in Q1 of the financial year 2019. The group’s adjusted basic earnings per share declined by 15.8 per cent to 0.32 cents in Q1 FY2020 from 0.38 cents in Q1 of the financial year 2019. The free cash flow stood at CAD 545 million in the first quarter of the financial year 2020 versus CAD 153 million in Q1 FY2019.

Share Price Performance

Daily Chart as of 12^th May 2020, (Source: Refinitiv, Thomson Reuters)

Telus Corp shares closed at CAD 23.18 at the time of writing after the market close on 11^th May 2020. Stock's 52 weeks High is CAD 27.74 and Low is CAD 18.55.

Valuation Methodology (Illustrative): Price to Earnings

*Peers: Chunghwa Telecom Co Ltd, Spin Master Corp, Swisscom AG, Shaw Communications Inc and BCE Inc.

Conclusion

The company has shown a decline in financial performance in the first quarter of the financial year 2020. The top-line performance has improved, with a strong operational performance for the period, while the bottom-line performance declined. The group has managed to increase the subscriber connections by 8.6 per cent for the period. The company continue to expand its Pik TV® and Optik TV® libraries with free preview channels and also included a free preview of educational content in partnership with Microsoft. T is providing support to small business using TELUS Business Solutions and offering three months of free service. The group is assisting government and providing support to the healthcare sector through its TELUS Business Customer Experience and Enterprise Solutions. The Company expect its operations will be impacted by the outbreak of covid-19 but remained confident in its business model, long-term outlook, and upcoming opportunities to tackle the uncertain time. The company’s transformational plans drive long-term growth, due to the cost transformation programme was on track; continuing to develop plans to simplify the processes and systems, and the Better Workplace Programme.

Based on the decent growth prospects, we have given a “Buy” recommendation at the current price of CAD 23.16 (as on 12th May 2020) with lower double-digit upside potential based on 20.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters. 

GFL Environmental Inc. 

GFL Environmental Inc. is an environmental services company, which offers non-hazardous solid waste management, soil remediation and liquid waste management services across Canada and the US. The Group derives one-third of its revenue from the primary market across Toronto and Montreal and the rest from secondary markets through solid waste management services.

Outlook: Due to the ongoing COVID 19 crisis, the Group witnessed a decline in commercial and industrial collection volumes. The Management highlighted that the primary markets would significantly be impacted than the secondary markets. To weather the current crisis, the Company is closely monitoring and taking various measures such as deferring non-essential capital expenditures, lowering variable and deferring its salary increment programs. For April 2020, the Business further witnessed a 9.9% lower income, excluding the impact of acquisitions and foreign exchange due to lower activity. However, the Company witnessed sequential increases in commercial and industrial collection activity.

Q1FY20 Financial Highlights: For the quarter ended March 31, 2020, GFL posted a 29.2% y-o-y growth in revenues to CAD 931.3 million. The increase was primarily underpinned by higher solid waste revenue from both Canada and the USA. The Company witnessed a surge (~30.4%) in the cost of sales and selling, general & administrative expenses (~88%). Net loss widened to CAD 277.9 million, from a loss of CAD 93.4 million in pcp due to higher operating costs and increase in interest and other finance costs, partially offset by an income tax recovery of CAD 87.7 million. During the period, the Company reported a CAD 100 million on capital expenditures.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative):  Price/ CF based Relative Valuation

Note: All forecasted figures and peers have been taken from Refinitiv (Thomson Reuters), NTM-Next Twelve Months 

Stock Recommendation: The Stock of GFL appreciated ~13% in the last one month and trading close to its 52-weeks high of CAD 25.65. The Company operates under waste management services, which comes under ‘essential goods and services’ and is defensive in nature. We have seen that majority of the investors lean towards these defensive names during the economic crisis, which results in the stock price appreciation. The Company has successfully lowered a significant portion of its total debt during Q1FY20, which is a  positive catalyst for the Company. The Group is well capitalized and seems to have an ample amount of liquidity including ~CAD 700 million in cash and more than CAD 600 million available under its revolving credit facility. The group expects the pickup in volume once the governments started to ease the lockdown and industrial activities restored. We have valued the stock using Price/CF based relative valuation approach and taken peers like Waste Management Inc (TSX: WM), Waste Connections Inc (TSX: WCN), Republic Services Inc (TSX: RSG)  etc. and arrived at a target price offering a single upside potential (in % terms). Hence, we recommend a ‘Hold’ rating on the stock at the current price of CAD 25.23 as on May 12, 2020.

GFL Daily Price Chart, Source: Refinitiv (Thomson Reuters)

Disclaimer

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