Telus Corporation Financial Report

Recommendation Summary

Business Summary

TELUS Corporation is a Canadian telecommunications company. It was formed in 1990 by the government of Alberta, originally called TELUS Communications, as a holding company. Five years later, they acquired Edmonton Telephones Corporation, making TELUS the sole provider of telephone service in Alberta (Wikipedia, TELUS). In 1999, TELUS and British Columbia Telephone Company (BCTel) successfully completed a merger, changing the name to TELUS Corporation. This merger created Canada’s second largest telcom, with 22% of the market share compared to Bell Canada’s 42% (Wikipedia, TELUS). TELUS continued to grow over the years and by the late 20th century, through another merger acquired the company Clearnet Communications. This gave TELUS the foothold into the highly competitive Canadian market in Ontario and Quebec (Wikipedia, TELUS) which are Canada’s largest provinces in terms of population. A few years later, in late 2004, Verizon Communications sold its 20.5% stake in TELUS (Wikipedia, TELUS). Since then, TELUS has become a major player in the telecommunications industry, starting with the launching of their mobile virtual network operator (MVNO), named Koodo Mobile, in 2008 (Wikipedi, TELUS Mobility), which has become extremely successful. Last year, revenues for TELUS (in millions of CAD) in all of Canada was $12,502 (refer to Appendix A).

Economic and Industry Trends

Business Cycle Identification

Industry Analysis

TELUS has become a major player in the telecom industry (refer to Appendix B) with millions of subscribers across Canada.

Industry Competition

Barriers to Entry

There is always a possibility of threats of new entrants in the telecommunications industry but as it stands, that threat is extremely low (refer to Appendix D). Considering TELUS is one of the top three companies in the industry, the main threats they face are new products/services released by competing companies already in the industry.

Strengths and Weaknesses

“In order for a company to remain in the competition and maintain integrity in the environment, a constant analysis of each sector needs to be conducted in order to see which areas need to be tweaked to better serve the customer. The purpose of this SWOT analysis is to describe TELUS’s strengths, weaknesses, opportunities, and threats.  TELUS is great at many things but can improve in some areas as well” (Finley, P. 2013). Refer to Appendix C.

TELUS has great customer service because of its helpful and friendly employees.  TELUS has a great reputation which makes people choose TELUS before any other brand. It currently has a customer base of about 7 million. TELUS has enough financial resources including government funding to buy the latest and greatest technology. For example, TELUS was the first company to launch 4k Netflix viewing.

        TELUS TV’s performance is declining because the TV often does not work properly and calling a helpline could lead to frustration. It also has less than 1 quarter of the total cell phone market share.

        Most of TELUS’s presence is in Canada and it has opportunities to expand globally. TELUS could also continue to expand its landline and TV business.

        The greatest threat to TELUS in TV and internet is Shaw. There are other competitors in cell phone business which are Bell Canada, Rogers, and Fido. “Each of these companies are fighting for dominance in the market share” (Finley, P. 2013)

Valuation

The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value (Investopedia, 2016).  We calculated TELUS’s intrinsic value using the dividend discount model (refer to Appendix D). We also considered the free cash flow for the firm (FCFF) when evaluating the value of TELUS. The FCFF represents the cash available to investors after a company has paid all of its costs of doing business. Since TELUS has a positive FCFF (refer to Appendix D), this indicates that TELUS has cash left over after expenses have been paid.  This tells us that the company has the ability to pay its shareholders dividends, which in turn adds value to the company. After calculating the company’s intrinsic value at $75.20 (refer to Appendix D) and seeing a positive value for the company’s FCFF, we have determined that the stock price of $41.97 is undervalued. We highly recommend you buy now before its value is realized and the stock price rises.

Key Parameters and Concerns

Final Thoughts

Appendices

Appendix A

TELUS Corp. (T CN by Segment)

*Source: Bloomberg