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Telus Sees Overall Growth in '12

TU BCE RCI

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The second largest Canadian telecommunications company, Telus Corporation (TU - Analyst Report) announced financial guidance for the upcoming fiscal year.

For 2012, the company projected its earnings per share in the range of $3.75–$4.15, reflecting an increase of 1–12% from its estimated earnings per share of $3.50-$3.90 for this year. The growth is expected to be driven by the company’s improvement in operating activity backed by reduced financial costs.  

Revenue is expected in $10.7–$11.0 billion range, 4–6.5% up from the estimated $10.225–$10.425 billion in fiscal 2011. EBITDA is estimated to increase 1–6% to $3.8–$4.0 billion in 2012 from the estimated $3.675–$3.875 billion for 2011. Management expects the strong momentum in wireless data services to remain a key growth driver in terms of revenue and EBITDA.

Capital expenditure is expected to be approximately $1.85 billion, up 3% from this year’s estimated expenditure of approximately $1.8 billion driven by investments in wireless and wireless upgrades, including broadband infrastructure enhancement and upgrades to support growth in Optik TV and Internet services.

Segment wise, management expects Wireless revenue to increase in the range of 5.5% to 8% to $5.75–$5.9 billion compared with the 2011 guidance driven by strong subscriber and average revenue per unit growth. Despite the negative impact of costs associated with smartphone customer acquisition and retention, EBITDA is expected to increase in the range of 5–9% to $2.3–$2.4 billion from the estimated $2.15–$2.25 billion for this fiscal year.

Wireline revenues are expected in the range of $4.95–$5.1 billion, up 1.5% to 5% from the 2011 estimated range of $4.825–$4.925 billion on the back of higher data revenue from Optik TV and high-speed Internet. EBITDA is expected in the (5)–2% bracket at $1.5- $1.6 billion as opposed to $1.525–$1.625 billion expected this fiscal year.

Continuous wireless subscriber growth, accelerated wireless data services, increased smartphone sales and growing wireline networks have raised the prospects of Telus’ 2012 results.

We remain encouraged by Telus’ prospects in Wireless data growth given new devices, technology upgrades, strong adoption of smart phones, deployment of HSPA+ Dual Cell technology and the expected launch of the 4G+ LTE network in 2012 which are expected to fuel Wireless revenue growth. On the Wireline side, the company’s continued investments to widen the footprint of its fiber optic network i.e. Optik TV and High Speed Internet services will boost profitability.

Moreover, we are encouraged by the company’s upbeat 2011 earnings and free cash flow guidance on the back of with cost reduction plans and further investments in broadband infrastructure expansion and upgrades. These would enable it to meet its growth goals for the coming year.

However, accelerated access line erosion in the Wireline segment, a weak Canadian economy, competitive threats from players such as Rogers Communication (RCI - Analyst Report) and BCE Inc. (BCE - Analyst Report) as well as reduced roaming charges keep us cautious on the stock.

Consequently, we maintain our long-term Neutral recommendation on Telus. However, for the short term (1–3 months), the stock retains the Zacks #4 Rank (Sell).

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