Telus Corp. (TU) was downgraded by UBS and Desjardins Securities on Wednesday after the telecom company lowered its 2008 wireless revenue guidance.
Desjardins analyst Joseph MacKay said:
Given the current economic environment, concerns over the declining wireless average revenue per user [ARPU] and increased competition in late 2009, we are moving to a Hold-Average Risk rating from Buy-Average Risk, and reducing our target to C$35.50 (from C$46).
UBS analyst Jeffrey Fan downgraded his Telus rating from "buy" to "neutral" and lowered his price target from C$40 to C$32.
Based on the trends of higher costs and lower ARPU going into 2009, we believe it would be difficult for wireless to exhibit accelerating EBITDA growth, unless the guidance reflects management's intention to reduce subsidies or improve pricing.
Mr. Fan added that Telus' dividend growth will slow going forward based on expectations for weaker free cash flow in 2009 and 2010. "Looking forward, we estimate the dividend compound annual growth rate from 09 to 12 will be approximately 5% (on top of current yield of 6.1%)."
RBC Capital markets analyst Jonathan Allen, noted that while Telus has minimized its cash taxes from "a whopping C$700-C$800-million double cash tax bill in 2009" to only C$320-350-million, it still has less than C$200-million remaining for buybacks after cash pension funding and dividends are paid out.
"[That] explains Telus' smaller buyback of max 8 million shares (vs. 16-17 million purchased in each of 2006-7)," he said.
Mr. Allen maintained his "sector perform" rating and lowered his price target from C$44 to C$40.