Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Telus T posted healthy first-quarter results. Revenue improved 3% yearly, while consolidated EBITDA expanded 6% as the firm added its fair share of subscribers across its wireless and wireline networks. Additionally, cost management has supported healthy margin growth as stiff competition persists.
Why it matters: Telus continues to drive impressive telecom results amid a challenging Canadian landscape, which is experiencing slowing immigration and increased competition as Quebecor pushes to become a national wireless player.
Wireless service revenue declined 1% in the period, as a 4% decline in average revenue per user offset a respectable 20,000 net customer additions during the quarter. Wireline revenue expanded 2% on the back of an impressive 50,000 customer additions, including 21,000 broadband customers.Telus is unique among its competitors, with its Telus Digital, telehealth, and agriculture businesses, each of which helps insulate the firm from a competitive telecom landscape and provides an additional layer of growth. Telus Health led the way with 12% year-over-year growth.
The bottom line: We raise our fair value estimate for Telus to C$30 per share, as we’ve increased our near-term revenue outlook for Telus Health, which continues to deliver impressive results.
Adjusted EBITDA margin of 36.3% in the first quarter was down slightly from last year but a healthy start to the year. We forecast 39% margins by 2029, as its noncore telecom businesses continue to scale and drive value.Although we don’t think its noncore businesses enhance narrow-moat Telus’ competitive positioning, at a time of intense competition, we appreciate the diversification effects and the runway for growth and margin improvement they provide.
Long view: Capital spending of C$587 million was down 19% year over year and equated to 13% of sales, down from 17% last year. After a long period of fiber network upgrades, Telus is now positioned to focus on free cash flow.
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