Telstra Corporation Limited

TLS Details

Expansion of Services Portfolio: Telstra Corporation Limited (ASX: TLS) is engaged in the provision of telecommunications and information services for domestic and international customers. The company recently updated that the progress on T22 strategy will result in non-cash impairment of legacy IT assets and increased restructuring costs in FY19.

Key Financial Highlights: During the first half of the financial year 2019, the company reported remarkable performance with respect to the customer numbers and share at the time of intense competition. The period was also marked by strong delivery against the T22 strategy. Total income during the period was reported at $13.8 billion, depicting a decline of 4.1%. EBITDA for the period amounted to $4.3 billion, down 16.4% and NPAT amounted to $1.2 billion, down 27.4%. During the period, the company added 239,000 additional retail postpaid mobile services in its portfolio. IoT (Internet of Things) also represented a positive growth momentum with revenue growth of 35.6%. The Board announced a fully franked interim dividend of 8 cps, comprising of interim ordinary dividend of 5 cps and an interim special dividend of 3 cps.


Financial Highlights (Source: Company Reports)

FY19 Guidance: The company provided FY19 total income guidance in the range of $26.2 billion and $28.1 billion. EBITDA for the financial year 2019 is expected to be between $8.7 billion and $9.4 billion. Capital expenditure is expected to be in the range of $3.9 billion and $4.4 billion and free cashflow is expected between $3.1 billion and $3.6 billion.

Outlook: The management of the company is positive on the growth prospects for the future. Despite the short-term challenges, the management sees positive signs of growth due to the increase in retail postpaid mobile services. The company will also reap benefits out of the growing demand for telco products and services.

Stock Recommendation: The stock of the company generated positive returns of 38.19% over a period of 6 months, YTD 40.68%. Currently, the stock is trading close to 52-weeks high level of $3.880 with a market capitalisation of $45.91 billion. Considering the Telstra’s T22 strategy, significant opportunities from the arrival of 5G, growth in terms of addition to retail postpaid mobile services, growing demand for telco products and services, etc, we, therefore, give a “Hold” recommendation on the stock at the current market price of $3.820, down 1.036% on 26 June 2019.


TLS Daily Chart (Source: Thomson Reuters)
 
 

TPG Telecom Limited

TPM Details

Increase in Underlying EBITDA Despite the Shift in Consumer Choices: TPG Telecom Limited (ASX: TPM) is engaged in the provision of consumer, wholesale and corporate telecommunication services. A statement of claim has been filed with the Federal Court to seek approval for the proposed merger with Vodafone Hutchinson Australia Pty Ltd. The merger of TPG and Vodafone is being opposed by the ACCC which stated that it will lead to a reduction of competition and contestability in the sector. It concluded that the proposed merger will lessen competition with respect to the supply of mobile services with TPG entering the mobile services market as the fourth competitor after Telstra, Optus and Vodafone.

Financial Highlights: During the half-year ended 31 January 2019, Underlying EBITDA for the period was reported at $424.4 million in comparison to underlying EBITDA of $413 million in H1FY18. The company witnessed increase in underlying EBITDA despite the loss of margin due to migration of DSL and home phone customers to low margin NBN services. Underlying NPAT for the period was reported at $225.2 million, up 3.5% on prior corresponding period. EPS amounted to 24.3 cents per share, up 3.3% on pcp. During the period, the company reported one-off transaction costs amounting to $4.4 million w.r.t planned merger with Vodafone Hutchison Australia. During the period, the group generated net operating cashflow after tax amounting to $333 million.

Segment Performance: EBITDA for the consumer segment was reported at $243 million as compared to $255.2 million in H1FY18. The Corporate Segment achieved an EBITDA of $182.5 million in comparison to $158.7 million in H1FY18.

Segment Results (Source: Company Reports)

FY19 Guidance: The company provided BAU (Business as Usual) EBITDA guidance for FY19 in the range of $800 million to $820 million and BAUcapex to be in the range of $180 million to $220 million.

Stock Recommendation: The stock of the company gained ~26% in the last 1-year. The market capitalisation of the company stands at ~$6.1 billion as on 26 June 2019. During H1FY19, the company reported growth in underlying EBITDA, NPAT and EPS. EBITDA for the period reported a rise despite the challenges occurring due to the shift of consumers to low margin NBN services. With the decent opportunities ahead of the 5G arrival and aforesaid fact, we recommend a “Hold” rating to the stock at a current market price of $6.510, down 0.913% on 26 June 2019.


TPM Daily Chart (Source: Thomson Reuters)

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