Telstra Corp Ltd

ASX:TLS — Company Profile

Last Close Price (+2.9%)




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Added 3 months ago

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

The loss of the wholesale monopoly, ongoing decline in fixed voice revenues and increased competition are proving stiff headwinds, but improving productivity and significant capital investments are expected to go a long way in plugging the gap.

As of HY2018, the business has spent $1.4 billion on additional capital expenditure (of the $3b committed), the vast majority of which was on network investments. The roll out of 5G and increased network capacity will prove to be very good assets. CEO Andy Penn said they were on track to deliver an additional $500m in operating profit by 2021.

The ongoing productivity program is also doing it’s part to help the business sustain profitability in a post-NBN world, with core fixed costs reduced by 7.2% in the 2018 HY.  So far, the company has absorbed about 29% of the earnings hole and remains confident it can plug the remainder in the years ahead. (we'll see)

Although growth will be non-existent for the foreseeable future, I believe that dividends are sustainable at the current level and, combined with full franking, justify the case for value (see my forecast page for my valuation)

Added 3 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