Telus Corp. $56 - Toronto symbol T.A

TELUS CORP. (Toronto symbols T $56 and T.A $54; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 331.7 million; Market cap: $18.5 billion; SI Rating: Above average) provides local and long distance telephone service in British Columbia, Alberta and parts of Quebec, and wireless service across Canada. A big part of the company’s success in the past few years is its wireless operations, which now account for 40% of its total revenue. Telus prefers to focus on long-term customers, which cuts the need for expensive promotions such as free phones. That has helped keep its wireless profit margins high compared to its main competitors (BCE and Rogers). Telus also tends to hang on to its customers longer. In the three months ended June 30, 2007, revenue rose 4.4%, to $2.23 billion from $2.14 billion a year earlier. Strong demand for wireless and high-speed Internet services offset lower revenue from its traditional telephone operations. Earnings fell 26.5%, to $0.75 a share from $1.02 a share, due to the costs of a new billing system. New regulations that let wireless customers keep their current phone numbers when changing providers also weighed on earnings. However, if you disregard unusual items, per-share profits rose 5.8%, to $0.73 from $0.69. Like most North American wireless providers, Telus uses the CDMA cellular standard. It may overlay its network with GSM wireless technology, which is popular in Europe and Asia. That could sharply increase Telus’s capital spending, which will probably total $4.70 a share in 2007. However, Telus will probably focus instead on new phones that use both systems. That would let it collect fees from customers who make calls on GSM networks in other countries. Telus shot up to $66 in May on speculation that it would merge with BCE, or perhaps become a takeover target itself. It now trades at 17.4 times the $3.22 a share it should earn this year (16.8 times for the ‘A’ shares). The $1.50 dividend yields 2.7% (2.8% for the ‘A’ shares). Telus is a buy. The cheaper, non-voting ‘A’ shares are the better choice.