Expanding penetration: Telstra Corporation Ltd.’s (ASX: TLS) roll out of NBN has progressed over the last year and accordingly the company is expanding their premium service Telstra Platinum which has more than 160,000 active users. TLS has over 2.6 million active 24x7 users. The company has improved 23% in agent booking system, a 20% in processing orders of a move and a 17% in new customer orders. TLS has launched Best Value Home Bundle Ever in March as well as launched BizEssentials bundles for small businesses. TLS has recently launched the new NBN self-install kit for Telstra customers in FTTN areas to replace their existing ADSL modem. Telstra is acquiring the most NBN wholesale access services on a national basis. The company has even increased the total capex investments to 15 per cent of sales. From three years to June 2017, TLS expects to have investment of more than $5 billion in the mobile network while the company’s 4G would reach 98 per cent population coverage by the end of June 2016, and 99% by the end of June 2017. TLS will be running the first live 5G trials in conjunction with the Commonwealth Games in Queensland in 2018. The company had acquired Pacnet which had accelerated growth while TLS is able to get the contract worth $25 million for the year.
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NBN has one-off and recurring impact (Source: Company Reports)
Diversifying business for a better product mix: TLS is diversifying its portfolio to offset pressure from its core business and invested in multiple sectors like digital media, eHealth applications and software and services through divisions like Telstra Health, Telstra Media, the Telstra Software Group (TSG) and Telstra Ventures. Telstra Ventures has participated in US$41 million Series D round for cloud security startup vArmour.
vArmour would be able to raise US$83 million from Redline Capital, Telstra Ventures and a number of other strategic investors. Telstra would add vArmour’s security solutions to its portfolio which would help them develop security consulting and managed services for its customers in the longer term. Meanwhile, Telstra and Telkom Indonesia’s network has launched private cloud services.
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TLS investments or partnerships across sectors (Source: Company Reports)
Building Contract Base: Telstra Health, a division of TLS launched in 2015 has secured a $220 million five-year contract from Federal Government to build and operate a National Cancer Screening Register to modernize and nationalize screening for cervical and bowel cancer, but health and privacy experts are concerned about the security of the data. According to Telstra Health, the organization would be using its four recently acquired health businesses to build and administer the register. Telstra with this contract would manage cancer screening for more than 11 million Australians.
Telstra Health would also be able to link a number of government agencies, including My Health Record and Medicare, as well as private health providers. TLS is investing a further $50 million to implement some of the recommendations made after the network resilience review. Telstra has signed series of recent agreements with NBN Co for additional works including the $1.6 billion contract signed last month to be completed by 2020.
Divesting non-core business: TLS had entered into an agreement with Ping An Insurance Group in April for the sale of 47.7% of total issued shares in its Chinese Online business, Autohome, for US$1.6 billion (A$2.1 billion). Telstra would retain a minority interest of 6.5% in Autohome after the completion of the transaction. However, some minority shareholders of Autohome have filed a petition in the Cayman Island courts while Telstra would contest the petition. The deal has strengthened TLS presence in China. Telstra is expected to book a profit of $1.8 billion on the sale of Autohome in its second half results. TLS has announced a capital management program of at least $1.5 billion and issued bonds of EUR 750 million under its Debt Issuance Program on March 16, 2016, having a coupon of 1.125% and maturing on April 14, 2026. TLS might not borrow to pay the dividend or fund capital returns for over a year and intends to maintain its balance sheet settings consistent with a single-A credit rating
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Balance sheet highlights (Source: Company Reports)
Recent Outages: Lately, it has been reported that about 75,000 Telstra customers got trapped in the latest network outage of ADSL and NBN services in TLS’s sixth outage across its various services since February 2016. This may cost chief executive Andy Penn over $1 million in bonuses. TLS is encountering an impending exodus of customers and faces challenges relating to increased competition in the wireless market.
Stock Performance: The shares of Telstra have recovered over 2.78% in the last three months (as of June 20, 2016) driven by its diversifying portfolio efforts, investments and Autohome divestment even though the stock delivered a negative year to date returns of 4.37%.
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