Telstra Corporation Ltd
Reduced FY 18 guidance and reaffirmed FY18 total dividend: Telstra Corporation Ltd (ASX: TLS) stock fell slightly after the company reduced its FY18 guidance due to nbn’s ceasing of sales on HFC (hybrid fibre co-axial) technology for six to nine months from December 11, 2017, and reissued nbn co.’s Corporate Plan 2018. Due to the nbn’s HFC cease sale, TLS has reduced the number of brownfields Ready for Service (RFS) premises and included a reduction of 200,000 brownfield activations in FY18 compared to the previous Corporate Plan, that has a negative impact on TLS’s expected FY18 Per Subscriber Address Amount (PSAA) and one-off Infrastructure Services Agreement (ISA) ownership receipts. As a result, TLS has revised its earnings before interest, tax, depreciation and amortisation (EBITDA) down from the previous $10.7 billion to $11.2 billion guidance to $10.1 billion to $10.6 billion, which is a reduction of about $0.6 billion. The total income has been reduced by $0.7 billion and the free cashflow has been reduced by $0.2 billion due to delays.
However, TLS reaffirmed the FY18 share dividend to be 22 cents.
Moreover, the most significant impact is the proportion of one-off receipts (including PSAA and ISA ownership receipts) to TLS from a timing perspective. The revenue recognition from TLS’ commercial works contracts with nbn will also be delayed. However, there will be benefits to TLS due to delay, that include lower nbn costs to connect (C2C), lower network payments to nbn and retained wholesale EBITDA, which will partially mitigate the reduction in one-off receipts. Overall, the delay might actually be largely neutral for the company; nevertheless, the market looks cautious on the developments.
Meanwhile, TLS stock has fallen 22% in last six months as on November 30, 2017. We give a “Hold” recommendation on the stock at the current price of $3.42
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Revised FY18 guidance (Source: Company Reports)
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