By David Berman
Given the backdrop of rising competition within the Canadian wireless industry, Telus Corp. (NYSE:TU) shares have enjoyed an amazing run – kissing $50 recently, for year-to-date gains of about 9 percent. By comparison, competitors BCE and Rogers Communications (NYSE:RCI) have been treading water.
Vince Valentini, an analyst at TD Newcrest, is maintaining a cautious approach to Telus, with a “hold” recommendation on the stock and a 12-month price target of $52. Indeed, with the company scheduled to report its first-quarter results on May 5, Mr. Valentini believes that it will have to satisfy six factors to keep the share price above $48.
1. Announce another share buyback program.
2. Report a gain in average revenue per user (or ARPU). Investors believe that Telus is more resilient to new competition than Rogers. But if this trends shifts in the first quarter, investors could question that belief.
3. Report a low churn rate, due to existing customers fleeing to competitors. Anything worse than a year-over-year churn increase of 12 basis points (0.12 percentage points) could raise a red flag.
4. Report a relatively stable wireless subscriber base, but Telus Mobility should report more than a 10 percent growth in EBITDA. Margins should rise at least 50 basis points.
5. Show an increase in the number of wireline subscribers, to account for cable losses at Shaw Communications Inc. (NYSE:SJR).
6. Report a decrease in wireline EBITDA no worse than 7 percent.
However, a seventh bonus factor related to Telus ownership could render the above points moot. As Mr. Valentini puts it:
Even though the federal election will be done by the time Telus reports, we highly doubt that there will be any evidence in the Q1 results or conference call to suggest that a takeover of Telus by either foreign telcos or BCE is likely in the near-to-medium term. However, it is such a big swing factor for the stock (and one that doesn't really exist for its main peers) we thought we should mention it here. In short, if we get any sense that a private market premium is a more realistic possibility in the next 12 months, then you can basically ignore points one through six above as investors are unlikely to care too much about fundamental details.