Telstra Corp Ltd

ASX:TLS — Company Profile

Last Close Price (+0.3%)

$3.15

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#5

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Strawman
Strawman
Last edited 3 months ago

Telstra is a business facing considerable challenges, but is far from terminal.

The structural change bought about by the nbn, and the competitive pressures that has unleashed, threatens to further erode margins. Earnings will take a further hit when one-off nbn payments cease in a few years.

Nevertheless, improving productivity and significant capital investments -- particularly into 5G -- could go a long way in plugging the gap.

This is a question of whether or not you believe management can deliver on the newly announced startegy: Telstra 2022. Something that promises to make Telstra a more competitive, efficient and focused operation.

If Mr Penn’s new strategy bears fruit, and (critically) if all cost savings are fully realised, you can make the case for value. Even if the dividend is cut in the meantime.

Some further thoughts here

Bear77
Bear77
Added 4 weeks ago

Monday 27th August 2018:  Just to update - I did hold TLS shares when I typed up that bull case above - but I don't now.  I sold last week.  On July 26th, only one month ago, TLS shares closed at $2.72.  Last Thursday (23rd August), TLS got as high as $3.40 during the day, and closed at $3.34, being 22.8% higher than 4 weeks earlier.  I don't think Telstra's outlook has improved 22.8% in the past month.  Andy Penn is still the boss.  They might be holding their market share, and even winning back some customers - in one or two areas, but if TPG and Vodafone did get together, would that be a net positive for Telstra?  Not likely!  Even if they don't, TPG is still going to be a formidable opponent once they get their mobile network sorted.  

I made the point a couple of months ago that TLS were worth more than where they were trading at - which was below $2.80 at the time.  I'm not sure they are worth more than $3.20 now though.  They might be, if they had better management, but they don't.

Isn't it funny that the share market is one of the few places where people like things more when the price goes up.  Even people who don't own any Telstra find them more attractive now when the price has risen, and liked them less when they were a lot cheaper.


Disclosure:  I don't currently hold any Telstra shares.

Strawman
Strawman
Added 2 months ago

From Livewire July 2018

Bullish view from Tim Kelley at the Montgomery fund.

See here

thunderhead
thunderhead
Added 2 months ago

https://www.livewiremarkets.com/wires/25-further-downside-for-telstra

Superted
Superted
Last edited 3 months ago

The bull points for Telstra have been well outlined in this forum. I agree with the comments made. It appears oversold and will probably recover from these levels. I remain bearish for the following reasons:

  • Be careful of doing a DCF valuation on a company under serious threat from competition. How reliably can we forecast earnings into the future? More specifically: How much money can Telstra make selling a mobile plan, if TPG is offering it for $10? Telstra shares appeared reasonable value at $6.00, at $5.00, at $4.50, at $4.00, at $3.50…
  • Telstra is a low quality business. It has delivered mediocre returns for all long-term investors since its listing. Investing in Telstra today should be with the following philosophy - Deep value mindset (buy low and sell high)- or a turnaround story with changes in the business
  • There are opportunity costs to allocating capital to this turnaround story, especially in a bull market. There are too many business risks for it to be a reliable bond-proxy

Upside are some above average dividends and share price return to more normal levels

Downside is signficant further intrinsic value decline related to many business risks (competition, earnings hole, poor investments), and rise in bond yields

Strawman
Strawman
Last edited 6 months ago

1. Telstra is seen by many as a 'Bond Proxy' -- so as interest rates rise, the relative attractiveness of its yield will diminish.

2. The company will not be able to fill the 'earnings hole' , and will waste capital in vain and fruitless investments

3. Added competition will further crimp margins

Strawman
Strawman
Last edited 3 months ago

Telstra 2022

Will split of infrastructure business -- InfraCo -- which will contain Telstra's fixed network infrastructure assets including data centres, domestic fibre, international subsea cables, exchanges, poles, ducts and pipes. The new business willhave assets of $11 billion, revenue of $5.5 billion and EBIDTA of $3 billion. Will not include mobile networks assets.

Cost out program significantly lifted by $1b, for targeted $2.5b in annual savings by 2022. Will reduce staff costs by ~30%. Cut 8,000 jobs.

Will sell $2b of assets to strengthen Balance Sheet. Expected to include network infrastructure and unused telephone exchanges which sit on valuable land.

Focus on being a 'premium' brand in 5G

Will have a vastly simplified product set, and retire around 1800 legacy contracts