Telus Earnings: Struggles in Peripheral Businesses Overshadow Solid Telecom Performance

Telus T again posted good results, with the acceleration in customer additions not unexpected considering the market tailwinds in Canada. However, Telus struggled with costs, and some of its side businesses performed poorly, particularly Telus International, or TI, in which Telus owns a 55% economic interest. The firm announced a workforce reduction program of about 6,000 employees, which we estimate to be about 5% of the company’s total, including TI. The struggles and restructuring led to management materially reducing its sales, EBITDA, and free cash flow guidance for 2023. The stock did not decline on the news, making us think a lot of bad news is already anticipated. However, we’re maintaining our CAD 33 fair value estimate and believe the 20% decline in the shares over the past year is overdone.

The core telecom business had a good second quarter, although margins were weak. The firm added 110,000 net new mobile phone customers, its best second quarter since 2010, but again trailed BCE and Rogers in a very hot market. However, Telus was also the only carrier to increase average revenue per wireless user, or ARPU, which we suspect is either because of a better mix shift toward more lucrative postpaid customers or a willingness to forgo opportunities with some lower-value users. Either way, year-over-year growth of 1% in ARPU and 4% in total mobile phone subscribers marks success for Telus. We expect Telus to continue taking a sizable share of new subscribers, which should stay elevated given Canada’s immigration policy, but we think heightened competition will limit ARPU growth.

Telus also added 35,000 broadband customers and 17,000 TV customers. The quarterly gains have been remarkably consistent over the past few years as Telus continues to take share. We expect the trend to continue, as Telus has now nearly completed the overhaul of its network with fiber.