DBRS Limited (DBRS Morningstar) confirmed TELUS Corporation’s (TELUS or the Company) Issuer Rating and the rating of the Company’s Notes at BBB (high). DBRS Morningstar also confirmed the rating of TELUS’s Commercial Paper at R-2 (high) and the rating of TELUS Communications Inc.’s Senior Debentures at BBB (high). All trends are Stable. The confirmations and Stable trends reflect DBRS Morningstar’s view that—although uncertainty related to the intensity and duration of the Coronavirus Disease (COVID-19) pandemic persists—the Company’s earnings profile is well positioned to navigate the current climate and has shown resilience during the pandemic and resultant macroeconomic impact. The ratings continue to be supported by TELUS’s well-entrenched market position and proven track record of profitable growth, while also reflecting intensifying competition and the risks associated with regulatory and technological change as well as the industry’s capital-intensive nature.
While TELUS’s 2020 earnings may be modestly below DBRS Morningstar’s initial 2020 expectations, we expect growth to remain positive year over year. Supporting this outlook is the utility-like nature of the wireless and wireline services provided by TELUS and the critical role the communications industry plays during times of adversity that positions the Company defensively through the current period. Further, many of the Company’s health services/platforms have enabled patients and doctors to remain in touch and capable of providing positive health outcomes amid a very fluid operating environment.
DBRS Morningstar believes that the critical nature of the Company’s communications services and its portfolio of electronic health services and/or platforms has been highlighted by shelter-in-place and/or work-from-home directives. In short, despite a radical and material impact on personal and business norms, TELUS’s communication, health, and business services have enabled individuals to remain connected, businesses to remain open, and many aspects of healthcare services to remain accessible despite the current crisis. Therefore, despite the significant uncertainty in the medium to longer term related to the economic impact of the coronavirus pandemic and the pace of recovery, TELUS’s operating segments are well positioned to drive revenue and earnings performance over DBRS Morningstar’s forecast horizon.
In terms of the Company’s financial profile, DBRS Morningstar expects TELUS’s credit metrics to remain essentially in line with 2019 because both core debt and EBITDA will likely remain relatively steady as the Company navigates the current pandemic environment. DBRS Morningstar expects TELUS to continue to generate stable cash flow to meet its capital expenditures and dividend commitments. In April 2020, the Company declared a quarterly dividend of $0.29125 per share, which was unchanged from the prior quarter as TELUS chose to defer the dividend increase that would otherwise have occurred. TELUS has no debt maturities in 2020 and the recent dual-tranche $1.0 billion debt issuance effectively prefunds the Company’s debt maturities through 2022.
While TELUS is well positioned to navigate the challenges of the coronavirus crisis, both in terms of operating performance and balance sheet stability and liquidity, a protracted global economic downturn could pressure medium-term operating results and cash flows. As a result, if TELUS were to experience a fundamental deterioration in profit and/or pursue more aggressive financial management that results in a sustainable rise in leverage, a negative rating action may occur.
Conversely, a positive rating action may occur if the Company’s earnings profile accelerates meaningfully for a sustained period and gross leverage moves structurally lower. However, this scenario is highly unlikely given the coronavirus crisis and economic challenges that are likely to intensify over the coming 12 to 24 months.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Communications Industry (August 15, 2019), DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2020), DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 10, 2020), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at firstname.lastname@example.org.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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