Telus Corp. (NYSE:TU) spent more on subsidies and retention costs in the first full quarter of wireless number portability in Canada as it tried to find new customers and keep existing. But will these higher costs carry on into subsequent quarters?
After comparing spending at rival Rogers Communications Inc. (NYSE:RCI), UBS Securities analyst Jeffrey Fan found that Rogers has invested more on gaining and retaining customers in the past three and a half years. He also notes the technological advances that come with such spending.
As a result, Mr. Fan thinks Telus may need to continue to invest here in order to make further strides against Rogers.
Meanwhile, now that Telus has calmed any investor worries regarding a possible run at Bell Canada Inc. (NYSE:BCE), no near term changes to its capital structure are expected. However, Mr. Fan still thinks Telus could make a significant share buyback.
He also noted that the current state of credit markets makes Telus a less likely leveraged buyout candidate.
Mr. Fan rates Telus at “neutral,” with a C$70 price target. In a note to clients he said,
Although there is approximately 25% upside from the current share price, we believe the lack of near-term catalysts will impact the share price performance, with share repurchases providing support. To become more positive, we would like to have better visibility on wireless performance in the 2H.