Resilient Business, Steady Subscriber Growth: TELUS Corporation (TSX: T) is Canada’s leading diversified communications and information technology company.  TELUS, through its wireless segment, generates revenues from mobile (data and voice) and equipment sales. The wireline segment includes voice and data revenues.

The company declared a dividend of CAD 0.5825, up 6.9% from April 2019 number. Dividend Payout ratio for FY19 stood unchanged at 78%, as compared to FY18.

Going forward, for FY20, TELLUS is targeting revenue growth of 6% to 8% followed by an Adjusted EBITDA growth of 5% to 7%, respectively. Capital expenditure is targeted at CAD 2.75 billion for FY20.

Q4FY19 Financial Highlights: For the period ended December 31, 2019, the TELUS posted operating revenue of CAD 3,858 million, as compared to CAD 3,764 million in the previous corresponding period. The growth was primarily driven by an increased subscriber base in the wireless segment. Adjusted EBITDA increased 7.9% y-o-y, reflecting growth in wireless network revenue on account of increase in subscriber base and higher wireline data service margins. Adjusted EBITDA margin expanded 160 basis points to 36.6%. Adjusted net income came in at CAD 400, down 2.2% year-over-year.

Key Quarterly Highlights (Source: Company Reports)

Valuation Methodology: EV/ EBITDA Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: The stock of T is quoting at CAD 22.28, with a market capitalization of CAD 28.22 Billion. Panic selling in equities took a toll on Telus stock too. However, the stock has outperformed the benchmark index by~14% and 17% on one month and three months basis, respectively. The company’s business is mostly immune to economic cycles. We expect Telus to continue to benefit from increased demand for data, growth in population, and higher mobile penetration. We expect Telus stock to recover sharply as the usage of data and other services offered by the company will continue to witness sustained demand. Telus is an investor-friendly company, meaning the company continues to boost investors’ returns through higher dividends. Telus stock currently offers a healthy dividend yield of 5.2%. Notably, the company has paid CAD 12.5 billion in the form of dividends since 2004, which is exceptional. In 2019, Telus paid CAD 1.3 billion in dividends. We have valued the stock using EV/EBITDA based relative value methodology. We have taken peers like BCE Inc (TSX: BCE), Verizon Communications Inc. (NYSE: VZ), Orange SA (NYSE: ORAN) and arrived at a target price of double-digit upside (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 22.28 as on April 03, 2020.

T One-Year Daily Price Chart (Source: Thomson Reuters)

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