Telstra Corporation Limited

Strong Momentum on T22 Strategy: Telstra Corporation Limited (ASX: TLS) provides telecommunications and information services for domestic and international customers.

Change in Directors’ Interest: The company updated that Nora Scheinkestel, one of the directors on the Board, acquired 13,220 ordinary shares for a total consideration of $49,442.80. As per another announcement, Peter Hearl acquired 30,000 ordinary shares for a consideration of $112,791.00.

Asset Monetisation: In-line with the T22 strategy announced in June 2018, the company completed monetisation of assets worth $1 billion, out of the targeted value of $2 billion. As part of the transaction, a Charter Hall-led consortium will acquire a 49% stake in the new property trust established by the company. This reflects a capitalisation rate of 4.4% with the value of entire property trust at $1.43 billion.

FY19 Results Highlights: The company’s total income during the period on reported basis stood at $27.8 billion, down 3.6% on FY18. Reported EBITDA for the period stood at $8.0 billion, down 21.7% on prior corresponding period. Net profit after tax for the period stood at $2.1 billion, down 39.6% on pcp. On guidance basis, total income stood at $27.8 billion, down 2.6% on pcp. On a guidance basis, EBITDA decreased by 11.4% to $9.4 billion. Underlying EBITDA for the year stood at $7.8 billion, down 11.2% on prior corresponding period. The company declared a final dividend of 8 cents per share, taking the total dividend of 16 cents per share for FY19.


Financial Summary (Source: Company Reports)

The period was characterised by continued customer growth, with addition of 378,000 net retail postpaid mobile services.In addition, the company reported strong progress on its T22 strategy. The company crossed the halfway mark of customers migrating onto the nbn network and launched 5G for future business growth.

FY20 Guidance: In FY20, the company expects the total income to be in the range of $25.7 billion - $27.7 billion. Underlying EBITDA is expected to be in the range of $7.3 billion - $7.8 billion. Restructuring costs for the period are expected to be around $300 million and capital expenditure in the range of $2.9 billion - $3.3 billion. Free cash flow after operating lease payments is expected to be between $3.4 billion - $3.9 billion.

Stock Recommendation: The stock of the company generated returns of 18.20% over 1 year. Although the reported financial trends in FY19 were challenging, the company expects underlying trends to improve over FY20. The company is progressing well towards strengthening its balance sheet as reflected in the recent update regarding monetisation of $1 billion assets. The company is rolling out 5G in 10 cities around Australia and expects 5G coverage to increase almost five-fold in the next 12 months. Considering the aforesaid factors, we recommend a “Hold” rating on the stock at the current market price of $3.680, down 1.604% on 28 August 2019.
 

Afterpay Touch Group Limited

US and UK Growth Exceed Expectations: Afterpay Touch Group Limited (ASX: APT) provides technology-driven payments solutions for consumers and businesses through Afterpay and Pay Now services.

FY19 Results: During the year ended 30 June 2019, the company reported underlying sales amounting to $5.2 billion, up 140% on prior corresponding period.At the end of the year, the company’s active customers totalled to 4.6 million, up 130% in comparison to number of customers at the end of FY18. Active merchants increased by 101%, to 32,300 merchants at the end of FY19. Pro forma EBITDA amounted to $35.5 million, broadly in-line with the prior corresponding period. This was a result of strong earnings growth in Australia and New Zealand, offsetting the start-up costs in UK & US markets.


Key Metrics (Source: Company Reports)

The company continued to outperform in all the geographies and channels. Growth in the US and UK exceeded the expectations through on-boarding of new major merchant brands. In FY19, underlying sales in the US amounted close to $1 billion. Merchant income margin in US was broadly in-line with Australia and New Zealand. The company on-boarded over 200,000 UK customers on the first 15 weeks, greater than the US at the same time.

Stock Recommendation: The stock of the company generated returns of 46.66% in 6 months and 115.58% on YTD. Currently, the stock is priced close to its 52 weeks high level of $28.760. During FY19, the company achieved significant momentum in the US and UK markets. The company witnessed decent growth in active customers and is currently on-boarding 12,500 new customers per day. During the year, the company also entered into a strategic partnership with VISA for future expansion in the US. However, the company has not provided any monetary guidance for the next financial year.

On the back of stellar growth across the board for FY19 results, the stock reacted and ended with the gain of 9.316% at market close on 28 August 2019.The stock has already run-up sharply in the last 6 months and YTD basis. Hence, considering the above factors, high returns on stock and current trading levels, we have a watch stance on the stock at the current market price of $28.280, up 9.316% on 28 August 2019 and suggest investors to wait for better entry level.

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