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TELUS (TU) Mulls Secondary Offering for 5G Investment Funds

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In a concerted move to increase its liquidity, TELUS Corporation (TU - Free Report) has announced a secondary offering of 51.3 million shares at C$25.35 each. The company will also grant a syndicate of underwriters an option to purchase an additional 7.7 million shares to cover any over-allotments. The company expects to generate gross proceeds of about C$1.5 billion from the transaction (if the over-allotment option is exercised in full), bulk of which is intended to be utilized for capital investments related to 5G infrastructure upgrade.

In particular, the company aims to use the proceeds to accelerate the build-out of TELUS PureFibre infrastructure in Alberta, British Columbia and Eastern Quebec and fast track the process of national 5G network rollout. TELUS expects to earmark about C$500-C$750 from the transaction for capital investments in 2021 and the remainder for 2022. These funds are over and above its planned annual capital expenditures of C$2.75 billion for 2021 and 2022, providing it with the requisite wherewithal to surpass the competition in the domestic market.

Leveraging the infrastructure investments, TELUS anticipates reaching up to 225,000 additional rural and urban premises with its fiber technology, while enhancing the speed and coverage of its wireless network. This, in turn, is likely to result in the addition of incremental customers and improve its operational efficiencies by advancing its copper decommissioning plans. In addition, it is likely to augment the cash flow from 2023 onward due to reduction of capital expenditures by at least C$250 million owing to accelerated investments in 2021 and 2022.

TELUS is poised to benefit from the increasing penetration of smart devices, wireless data services and wireline fiber optic networks. The Canadian telecommunications company expects balanced growth in the wireless and wireline businesses. TELUS has secured new 600 MHz spectrum licenses in British Columbia, Alberta, Saskatchewan, Ontario and Quebec for a consideration of $931 million. Equating to a national average of 11.3 MHz, these licenses will allow it to provide improved mobile broadband connectivity at a time when the industry is moving from 4G LTE to 5G. The deployment of this latest spectrum is important to TELUS’s 5G growth strategy coupled with better network quality, speed and coverage. The 600 MHz band can travel distances in rural areas and penetrate barriers to better reach in-building locations.

Markedly, TELUS’ 4G LTE network covers 99% of the country’s population. The addition of 600 MHz spectrum will help it increase urban capacity while expanding the rural availability of wireless broadband service. The company is focused on the execution of its strategies along with amplifying efforts for cost efficiency leading to margin-accretive customer growth and investments to support its expansion strategy. With the expansion of the Internet of Things marketplace into Canada, TELUS is focusing on consolidating its foothold in the market. It has introduced the TELUS Global IoT Connectivity platform to deliver seamless connectivity and simplified billing across 200 networks globally, thus supporting the expansion of Canadian business enterprises.

In the next two years, the company aims to offer direct fiber access to 93% of Greater Quebec City and Eastern Quebec residents. The company plans to generate subscriber growth in key growth segments, including wireless, high-speed Internet and TELUS TV. Increasing demand for reliable access and fast-data services are expected to support customer addition. Furthermore, TELUS International and TELUS Health are likely to contribute to the company’s organic and inorganic growth as exemplified by the Lionbridge AI buyout.

The stock has gained 37.1% in the past year compared with a 20.1% rise of the industry.

TELUS currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industry are Knowles Corporation (KN - Free Report) and Plantronics, Inc. (PLT - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Corning Incorporated (GLW - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Knowles has a long-term earnings growth expectation of 10%. It delivered a positive earnings surprise of 19.3%, on average, in the trailing four quarters.

Plantronics delivered a trailing four-quarter positive earnings surprise of 560.4%, on average.

Corning has a long-term earnings growth expectation of 2%. It delivered a positive earnings surprise of 41.6%, on average, in the trailing four quarters.

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