TLS
Don’t hang up
Telstra increased its dividend for the first time in seven years following the successful completion of T22 program and continuing strong momentum in its underlying business.
The Daily view of Telstra indicate price has traded above the 20 day and 200 day moving averages, with the current movement towards the high of the range further gains could be expected.
Speaking at the full year results presentation, now retired Telstra CEO Andy Penn said Telstra’s T22 strategy had set the company up well to manage through the current uncertain economic climate and created the foundation for growth. “When we launched our T22 strategy four years ago, we were in part responding to the operational and financial headwinds created by the rollout of the NBN.”
Following the T22 program focusing on simplifying the business the company has really moved ahead with the digital aspect with almost half of all sales interactions with consumer & small business customers and more than three quarters of all service interactions are now in the digital realm. Telstra has also changed the customer service model with the number of calls coming into Telstra’s consumer & small business contact centres falling by more than 70 percent, and we note these calls are now all answered in Australia. In the T22 program, cost cutting the licensee stores has now been completed and all stores have been brought back in house and now fully Telstra owned and operated. Telstra’s 5G network is currently around twice the size of the next nearest competitor, covering 80 percent of the population with staggering 3.5 million 5G capable devices already connected. Factoring in the recent Towers sale, close to $5 billion of assets were monetised.
Telstra set out to transform the business with the T22 productivity target of $2.7 billion was achieved. This outcome has seen the underlying ROI return on investment improved by 2 percentage points to 7.0 percent in FY22 and is on track to meet the FY23 target of around 8 percent.
Prior to his departure Mr Penn said “While we are by no means immune, the transformational changes we made through T22 have prepared us well to manage through the uncertainty – we are a much simpler, more agile, more efficient, leaner, more customer-focussed and more digitally-enabled business.”
Looking to the future and the T25 program major infrastructure announcements have included a partnership with global satellite communications companies, OneWeb and Viasat, to support its new Asia Pacific satellite constellation, this may be in part to the competition coming from Elon Musk’s starlink satellite already taking some market share in Australia and the pacific.
Source: Telstra
OneWeb has been building its initial constellation of 648 satellites and has 428 satellites in low earth orbit already. The remaining satellites will be launched over coming months. Services are available in Alaska, Canada, UK and the Arctic region. By late 2023, it will be offering its high-speed, low-latency connectivity services worldwide including Australia.
The satellite partnership program with Viasat would put Telstra at the forefront in regional and remote area’s and across the pacific with the supply of ground equipment replacing the current bulky Iridium equipment. The recent purchase of Digicel the voice and data provider across many pacific islands will complement the satellite business.
In other area’s a significant upgrade of Telstra’s nationwide inter-city fibre network to enable ultra-fast connectivity between capital cities, for which Microsoft was recently announced as an anchor tenant is taking place. Capex guidance includes around $350 million of strategic investments in inter-city fibre and for the OneWeb contract, and around $150 million for Digicel Pacific.
The monthly view of TLS highlights the resistance level of $3.85 currently providing support for current price movements. Telstra has entered into a Primary up trend, currently price has also crossed the 12 month moving average.
For FY23 guidance and outlook Telstra has provided the following financial guidance which anticipates continued underlying business growth to continue with total Income of $23.0 billion to $25.0 billion. Fat Prophets expect underlying EBITDA2 of $7.8 billion to $8.0 billion with total capex of $3.5 billion to $3.7 billion.
Source: Telstra
On underlying EBITDA, guidance is provided within the previous FY23 ambition range, plus a contribution coming from Digicel Pacific, which is included in all FY23 measures. The Board also resolved to pay a fully-franked dividend of 8.5 cents per share, bringing the total dividend for the year to 16.5 cents per share. Importantly, this included an increase in the ordinary dividend from 10 to 13.5 cents per share, and confirms around $1.9 billion returned to shareholders, on top of the successful $1.35 billion share buyback completed in May 2022.
Summary
Telstra remains capex heavy building the satellite network off the back of the NBN contribution. Telstra the utility company with satellites looks to be the next enterprise contribution as the “internet of things” continues to go at exponential rates, this will give Telstra exceptional pricing power. Telstra is capitalising on the exodus of customers from the Optus data breach incident further adding to the pricing power of the company to offer digital products on their terms. It is always pleasing to see the increase in dividend from the company.
We move Telstra from a Hold to a Buy for Members without exposure. Telstra remains within the Fat Prophets core portfolios.
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