Telus Corp. is unchanged—buy

A subsidiary of Key stock Telus Corp. has agreed to acquire an American provider of digital information technology and software services. This has little impact on Telus. It remains a buy for long-term share price gains as well as attractive and growing dividends.

Telus_CorpA 65-per-cent-owned subsidiary of Vancouver-based Key stock Telus Corp. (TSX—T) has agreed to acquire California-based Xavient Information Systems. Subsidiary Telus International will pay US$250 million of borrowed money and some of its own shares. Since this is unlikely to have much impact on Telus Corp., it remains a buy for long-term share price gains as well as attractive and growing dividends.

Telus International “is a leading global business process and IT [Information Technology] services company . . . in Canada, the United States, Europe, Central America, the Philippines and the United Kingdom.” Xavient will enable Telus International to operate in India for the first time.

Telus International has “over 200 million customer interactions supported annually via voice, email, chat and social media, across fast-growing tech, financial services and fintech, gaming, travel and hospitality, and healthcare industries.”

Xavient will add to Telus International

Xavient “is a US-based provider of Digital IT Solutions and software services. . . . The company has offices throughout the United States and an international network of delivery centers. . . . Xavient’s core competencies are in digital transformation stacks and full life-cycle IT services across telecom, media, BFSI [Banking, Financial Services and Insurance],  Healthcare and consumer technology verticals.”

In short, the acquisition of Xavient will improve Telus International’s next-generation IT consulting and delivery capabilities. Telus International will initially own 65 per cent of Xavient with an option to buy the rest until the end of 2020. It expects to complete the initial transaction before the end of 2017.

Telus Corp. itself is not borrowing money or issuing shares. So it’s unaffected. Xavient is likely to add or subtract little to Telus’ revenue of C$13 billion.

Telus Corp. calls itself “Canada’s fastest-growing national telecommunications company”. Its focus is on adding to its 12.8 million subscriber connections. Of this, 8.7 million are wireless subscribers. Telus serves 1.7 million high-speed-Internet subscribers. Together, these two groups of highly-prized customers account for over 81 per cent of the company’s subscribers. The balances are 1.3 million residential network access lines and 1.1 million TV customers.

Telus pays dividends of $1.97 a year. This yields an attractive 4.2 per cent. It remains a ‘dividend aristocrat’ after raising its dividends for many years in a row. We expect Telus to keep raising its dividends.

Telus remains a buy for long-term share price gains plus attractive and growing dividends.

This is an edited version of an article that was originally published for subscribers in the November 10, 2017, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

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