TELUS CORP. (Toronto symbols T $57 and T.A $57; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 325.0 million; Market cap: $18.5 billion; Price-to-sales ratio: 1.8; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.telus.com) gets most of its growth from wireless services. Its 7.3 million subscribers across Canada now supply 52% of its earnings.
The remaining 48% of Telus’s earnings comes from its wireline division, which mainly consists of 3.6 million traditional phone customers in B.C., Alberta and eastern Quebec. This division also includes 1.3 million Internet users and 509,000 TV customers.
Telus added 369,000 wireless subscribers (net of deactivations) in 2011. That’s down 17.4% from a net gain of 447,000 users in 2010, mainly due to the loss of a contract with the federal government.
Even so, Telus continues to benefit as more of its subscribers opt for smartphones. These users now account for 53% of Telus’s wireless subscribers under long-term contracts, up from 33% a year earlier.
Telus also sells most of its smartphones under long-term contracts, which makes it harder for users to switch providers. Customers under long-term contracts now account for 83.5% of its total wireless customers, up from 81.8% a year earlier.
Telus’s overall revenue in 2011 rose 6.2%, to $10.4 billion from $9.8 billion in 2010. Wireless revenue rose 9.0%, while wireline revenue rose 3.3%. Earnings rose 15.5%, to $1.2 billion from $1.05 billion. Earnings per share rose 14.4%, to $3.74 from $3.27, on more shares outstanding.
The company spent $1.85 billion on capital upgrades in 2011, and will probably match that in 2012. Most of this spending will go towards expanding its wireless and high-speed Internet networks. Telus’s cash flow in 2011 was $2.8 billion, so it can easily afford these investments.
Telus now plans to merge its common and class A non-voting shares into a single class of shares. If shareholders approve, each non-voting share will become one common share. The plan should improve liquidity.
Telus also recently raised its quarterly dividend by 5.2%, to $0.61 a share from $0.58. The new annual rate of $2.44 yields 4.3% for both classes.
The company will probably earn $4.02 a share in 2012, and the stock trades at 14.2 times that estimate.
Telus is a buy. The cheaper A shares are the better choice.
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