Telstra Corporation Limited

Appointment of New Chief Financial Officer: Telstra Corporation Limited (ASX: TLS) is into the provisioning of telecommunication and information services, which includes mobile, internet and pay television. On 9^th April 2019, the company, by release, updated the market on the appointment of Vicki Brady for the role of Chief Financial Officer and Head of Strategy. It also mentioned that Vicki Brady was former Group Executive of Consumer and Small business. Vicki had vast experience of finance, commercial and strategy roles before coming into a broader business leadership position. It was mentioned that Michael would continue permanently as Group Executive of Consumer and Small Business.

In another update, the company stated that it had issued a bond of EUR 600 Mn under its Debt Issuance Program. These bonds are attached with a coupon of 1.375% and Bonds would mature on 26^th March 2029. In the context of utilisation of raised funds, TLS would use funds for general corporate purposes.

A Quick Look at Half Yearly Results for FY19: The half yearly results were in line with expectations and showed continued growth in mobile services.The company stated that total income on a reported basis witnessed a decline of 4.1% and stood at $13.8 Bn and EBITDA, on a reported basis, stood at $4.3Bn, which reflects a fall of 16.4%. However, NPAT witnessed a decline of 27.4% and stood at $1.2 billion. All these results have been affected by the further rollout of the nbn™ network.

The T22 strategy allowed the business to take benefit of future opportunities, which includes building on the investment in networks and digitisation announced in 2016.With respect to future aspects from T22, the company pointed out that it is simplifying the business and reducing the company’s cost base for the future. It is setting TLS for 2020’s and beyond. Additionally, it is also allowing to take benefits of the significant opportunities, which are coming around the corner from increasing demand, technological change and the influx of 5G.


Capital Position (Source: Company Reports)

What to Expect from TLS: Telstra Corporation Limited anticipates total income in the range of $26.2 Bn-$28.1 Bn and EBITDA (which excludes restructuring costs) of $8.7 to $9.4Bn.The capital expenditure and free cashflow are anticipated in the range of $3.9 Bn-$4.4 Bn and $3.1 Bn-$3.6 Bn, respectively.

The company stated that the cash capex would increase as TLS takes benefit of opportunities in the enterprise and wholesale fibre markets. Additionally, the cash redundancies would be higher as the company fast-track its productivity.

Stock Recommendation: The company has been experiencing intense competition in the mobile market.The gross margin of the company stood at 65.2% for 1HFY19 in comparison to the industry median of 57.5%, which represents that the company is in a good position to address its operating expenses in comparison to the broader industry.

The return on equity stood at 8.5% for 1HFY19, whereas the industry median stood at 6.0%, which depicts that the company is delivering better returns to the shareholders as compared to the broader industry. In the span of one-month and three months, it had generated a decent return of 5.90% and 12.56%, respectively. Currently, the stock of the company is trading close to its 52-week higher level of $3.600 with PE multiple of 13.75x. Hence, considering the aforesaid facts and current trading level, we maintain our “Hold “rating on the stock at the current market price of $3.580 per share (down 0.279% on 22^nd May 2019).   

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