TELUS Corporation’s (TU) prospects in the Wireless segment are backed by technology upgrades, extensive rollout of smartphones, attractive postpaid plans and 4G LTE network expansion. Meanwhile, the company’s investments in Optik TV and Internet business are expected to reap favorable results for its Wireline segment. However, these positives might be somewhat mitigated by persistent access lines erosion.
Telus continues to benefit from its leading wireless subscriber base, increased penetration of smartphones, improving churn (customer switch), higher average revenue per unit, accelerating wireless data services and growing wireline fiber optic networks. The company expects balanced growth for its wireless and wireline businesses owing to its investments in high speed broadband technology and services and its Customer First strategy.
In addition, Telus has launched its new SharePlus rate plans under its Clear and Simple plan that comes with unlimited talk and text options along with shared data alternative for individual subscribers and small business customers. The carrier is optimistic about the success of its shared data plans and the growth prospects in this area owing to increased data penetration on roaming and expanded range of services and applications.
Telus also recorded an industry leading monthly post-paid wireless subscriber churn rate of 0.90% in the third quarter of 2014 versus 0.99% in the year-ago period. ARPU (average revenue per user) grew 3.2% year over year to around $59.29. The monthly blended subscriber churn rate improved to 1.25% from 1.36% in the year-ago quarter.
With the launch of an Internet of Things (IoT) marketplace in Canada, Telus is aiming to consolidate its foothold in the IoT market. The online marketplace is a first of its kind in Canada that would be offering ready-to-use IoT solutions from industry-leading technology companies. Initially, the IoT marketplace will feature 38 solutions across multiple industries, including fleet management, pipeline safety, retail, restaurant, construction and public safety.
On the flip side, the company faces fierce wireless competition from Rogers Communications and Cincinnati Bell, both of which enjoy national coverage in Canada and have built 3G networks. The company’s prepaid subscriber base declined 7.3% to 0.999 million at the end of the third quarter.
The company’s strict credit policies and the loss of a federal wireless contract to a lower bid by a prominent national carrier have made the picture even worse. Further, cash taxes are expected to increase to a range of $540–$600 million, due to a higher income tax level and higher instalment payments based on 2013 income. This may restrain the company’s margin considerably in the coming quarters.
Meanwhile, Telus exited the third quarter of 2014 with net debt of approximately $8,504.4 million compared with $6,984 million at the end of 2013. Net debt to EBITDA (excluding restructuring costs) increased to 2.18 times from 1.80 times in the prior quarter and is outside the company’s long-term target range of 1.5−2.0 times. The substantially high debt level may raise the company’s leverage ratio and hurt its future expansion strategies.
Telus currently has a Zacks Rank #3 (Hold).
Key Picks in the Sector
Better-ranked stocks in this sector include BlackBerry Ltd. (BBRY), Ceragon Networks Ltd. (CRNT) and Orange (ORAN). All the three stocks hold a Zacks Rank #2 (Buy).
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