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Telus, Loblaws see big telehealth future

With the pandemic acting as a catalyst, a spinoff of Telus Health may come sooner rather than later.

Two household names most familiar to Canadians for cellphone plans and groceries, are leading the charge in the development of telehealth services.

With the pandemic acting as a catalyst, Telus Corp. and Loblaw Cos. Ltd. are positioning themselves as leaders in this fast-growing field. For Telus, the moment is here. For Loblaws it is a medium-term opportunity.

Telemedicine has been around for a long time and refers to diagnosing and treating patients via phone and internet. Telehealth is a broader category that includes telemedicine. It involves offering services via apps and monitoring data coming from wearable devices such as pacemakers and other implants. It also includes an ability to share information among healthcare providers. A powerful enabler is the software that connects everything.

Telus has been growing its telehealth business for the past 13 years and generates $800 million a year in revenues. It helps doctors, dentists, and clinics manage bookings and organize records. It also helps medical professionals connect with patients via phone and internet.

Loblaws made two acquisitions in the fall as part of a connected health strategy which is a medium-term plan to leverage Shoppers Drug Mart’s pharmacy and dispensing network. Loblaws bought Shoppers in 2013.

While the telehealth trend has been underway for some time, the pandemic has opened the floodgates. What was expected to evolve over three to five years happened in a matter of months. Consumers became more familiar with online interactions by necessity. Once doctor offices reopened, many people were hesitant to visit in person and became more comfortable with virtual visits.

 Here’s a closer look:

Telus (TSX: T, NYSE: TU) is Canada’s second largest wireless telecom company after Rogers Communications Inc. Its core business includes internet and mobile phone service though the Telus and Koodo brands. Its Telus Health unit is Canada’s largest telehealth provider.

The shares are up 3.4% year-to-date to $26.06 at the time of writing, having retreated from their high of $27.74 set in early February.

Telus reported its year end results on Feb. 11. For 2020, revenue of $15.3 billion was 4.8% higher, while net income of $1.2 billion was 31% lower. The results reflected multiple impacts from the pandemic, declines in landline telephone connections, and higher employee benefits.  

Telus is bullish on 2021, which began with the spin off Telus International Inc. (TSX: TIXT) in a $1.36 billion initial public offering, the largest technology IPO in TSX history. Telus International was launched as a call centre manager in 2007 and now provides many forms of customer service for such companies as Fitbit, Uber, and online gamer Zynga. It moderates their online content and builds virtual customer service assistants, often called chatbots.

Telus retains control through multiple-voting shares of TI.

While Rogers and BCE Inc. turned to media investments as way to grow, Telus is using its skills to manage data in new and very focused ways. The spinoff model is expected to be the first of several, with predictions that Telus Health is next. A third unit under development is Telus Agriculture. Telus does not break out the financial information of either unit, though François Gratton, chair of Telus Health, said last year the unit has $800 million of revenues.

Telus has teamed up with Babylon Health Services Ltd., a private company based in the UK that is a leader in artificial intelligence and related technologies. Telus offers Babylon’s app to its customers as a free download. It links patients to doctors who can diagnose, refer them elsewhere and prescribe drugs. In most provinces, government health care plans cover the costs.

Telus raised its dividend 7% with the January payment to $0.31 per share. The new rate yields 4.8% based at the current price.

Telus is growing these businesses out of the limelight and plans to retain big stakes after spinoffs. It enhances value for Telus shareholders and offers a model for growth outside its core business. 

Loblaw Cos. Ltd. ( TSX:L) is Canada’s largest grocer, owned 47% by George Weston Ltd. Loblaws owns the Shoppers Drug Mart chain and PC Financial. It also sells clothing under the Joe Fresh name. Loblaw brands include President’s Choice, No Name, Exact, and Life.

The pandemic is squeezing grocery store margins, even as sales are up. Credit: Pexels

Loblaw had revenues of $51 billion in its latest 12 months and net income of $1.02 billion.

After a spurt in the spring when nervous customers loaded their pantries, grocery stocks have lagged the market rebound. Loblaws shares are off 1.5% year-to-date and 13% in the past 12 months at the current price of $61.88.

Food chains were among the worst-performing Canadian stocks of 2020. Margins are under pressure as the pandemic increase the costs of producing and shipping food. The pandemic also added costs for such things as protective equipment for staff, higher wages, and enhanced store cleaning.   

Groceries are a mature, thin margin business so Loblaws is trying to grow through telehealth. In September, it made a $75 million investment in Maple Corp., which offers an app that connects patients to pharmacists and doctors. It facilitates consultations through the Shoppers website for such things as skin problems, allergies, and infections.

In November, it announced a partnership with League Ltd., a startup that has developed the PC Health app with similar features to Babylon. It enables live chats with nurses, dietitians, and others who can refer users to doctors, mental health support, and vision care.

Loblaw increased its dividend 6.35% to $0.335 with the December payment, its ninth straight year of increase. It yields 2.16% at current prices.

As conditions improve, so should Loblaw’s profitability. New ventures like connected health offer growth in the medium term at a modest pace.

This is an edited version of article that appeared in the Internet Wealth Builder on February 15, 2020.  For information on how to reprint this article please view this page.

2 comments on “Telus, Loblaws see big telehealth future

  1. I have *Telus T:T *- is this the stock you are referring to? or should I buy the spinoff? thanks.

    Like

    • Thanks for the email. As a Telus shareholder, you benefit from the spinoff as Telus retains a stake and voting control and so participates in the growth of TI. Whether either is suitable as an investment would depend on your strategy and as always is something you would discuss with an advisor.

      Like

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