TELUS International (Cda) Inc.

TELUS International (Cda) Inc.

(TIXT-N, TIXT-T) US$29.11 | C$36.73

Delivering Digital Customer Experience on a Different Level

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Company Profile

About TELUS International TELUS International (NYSE and TSX: TIXT) designs, builds and delivers next-generation digital solutions to enhance the customer experience (CX) for global and disruptive brands. The company’s services support the full lifecycle of its clients’ digital transformation journeys and enable them to more quickly embrace next-generation digital technologies to deliver better business outcomes. TELUS International’s integrated solutions and capabilities span digital strategy, innovation, consulting and design, digital transformation and IT lifecycle solutions, data annotation and intelligent automation, and omnichannel CX solutions that include content moderation, trust and safety solutions and other managed solutions. Fueling all stages of company growth, TELUS International partners with brands across high growth industry verticals, including tech and games, communications and media, eCommerce and fintech, healthcare, and travel and hospitality. Learn more at: telusinternational.com.

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A leading digital customer experience provider. TI is a provider of digital customer experience (CX), digital transformation, content moderation, and data annotation solutions. It has ~50,000 employees in 50 delivery locations servicing over 600 clients. The company has a three-year revenue CAGR of ~40%.

Expecting above-market growth. We expect TI to report mid-teens organic revenue growth in each of the next two years, partially supported by TI's higher revenue mix of digital services. TI is estimated to generate 54% of its revenue from digital services, a market sub-segment that is expected to grow at an over 20% CAGR in the next three years. We also estimate that ~40% of TI's 2021 revenue could come from the recent CCC and Lionbridge AI acquisitions; these acquisitions were each growing at ~30% before the pandemic.

Strong customer base and end-market exposure. Some of the fastest-growing companies, including Google, Facebook, and Amazon are TI customers. TI's top-25 customers are expected to grow by 13% in the NTM, supporting our mid-teens organic forecast. Its three largest verticals are Tech & Games, Communication & Media, and Ecommerce & FinTech. We believe that these are some of the fastest growing end-markets and set up TI for continued market outperformance.

Market-leading metrics. We believe that TI has one of the highest EBITDA per employee metrics among the customer experience and business process outsourcing (BPO) peers. We estimate TI's EBITDA per employee to be more than twice as much as Teleperformance, one of the largest customer experience vendors. We believe that TI is able to achieve this performance due to strong execution and a favourable business mix.

Strong acquirers. TI's strong track record is evidenced by record revenue and EBITDA margin in 2020, 2019 ROIC of 17.2%, and the acquired companies generating an EBITDA CAGR of 23-73% following their acquisition.

TD Investment Conclusion

Our $37.00 target price is based on 17x our C2022 EBITDA. Our multiple is above its CX and BPO peer group, but we believe that TI's market-leading metrics, margins, and above-market expected growth rates deserve a multiple premium.

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Source

TD Securities Inc, Equity Research, March 2, 2021