Many companies sell shares in a subsidiary to the public before handing out the remaining shares in the new firm to its existing shareholders. This process—called a carveout—gives the new company a chance to build up a following with analysts and investors.
This telecom operator’s successful carveout and subsequent IPO may generate more carveouts (or even traditional spinoffs) in the next few years. This would drive up the share price by further unlocking the company’s hidden value for investors.
The stock trades at 22.0 times the company’s 2021 earnings forecast.
TELUS CORP. (Toronto symbol T; www.telus.com) is Canada’s second-largest wireless telephone carrier, after Rogers (No. 1). It also sells landline phone, Internet, TV and home security services in B.C., Alberta and eastern Quebec.
The company also controls Telus International. It operates call centres on behalf of corporate clients in North America, Central America, Europe and Asia. It also helps clients manage their computer systems.
Telus International recently sold shares to the public at $25.00 U.S. a share. The new shares trade on the Toronto and New York exchanges under the “TIXT” symbol.
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In the nine months ended September 30, 2020, Telus International’s pro-forma revenue rose 17.0%, to $1.35 billion from $1.15 billion a year earlier. (Note—this business reports in U.S. dollars.) That partly reflects its January 2020 purchase of Germany-based Competence Call Center for $873.0 million. That profitable firm helps businesses monitor and remove questionable content from websites and social media. Earnings in the quarter gained 6.1%, to $100.4 million (or $0.42 a share) from $94.6 million (or $0.41).
Telus International plans to use the $490 million U.S. from the IPO to pay down loans through its credit facility. That debt totalled $730.6 million U.S. as of January 31, 2021.
Parent company Telus also sold some of its shares in the subsidiary through the offer. It now holds 67.0% of the voting power of Telus International through multiple voting shares (10 votes per share). Its economic interest is 55.2%.
The sale raised roughly $200 million (Canadian) for Telus. It has not yet said what it plans to do with the proceeds. However, the cash will help it fund the rollout of its ultrafast 5G wireless networks. The company will probably spend $2.75 billion on 5G and other upgrades in 2021.
Telus could also spin off other businesses. They include Telus Health, which helps clinics, pharmacies and hospitals manage electronic patient records, and Telus’s agricultural division, which makes software to help farmers and food producers increase crop yields and manage supply chains.
Investors can expect Telus to earn $1.20 a share in 2021, and the stock trades at a reasonable 22.0 times that forecast. The $1.245 dividend yields a high 4.7%. Telus International does not pay a dividend.
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I did look at Telus, but chose instead to go with SMU.UN
I am enjoying reading your articles and proceeding slowly with your information and recommendations.
Thank you
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