Telstra Corporation Ltd
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TLS Details
· Response to ACCC Draft Decision on Regulated Roaming: Telstra Corporation Ltd (ASX: TLS) has welcomed the ACCC’s draft decision not to declare mobile roaming. The ACCC has released a draft decision that, if confirmed, will support continued telecommunications competition and investment in regional Australia. Therefore, if this decision is confirmed, TLS might get on with the job of supporting regional Australia and even more investment. TLS through their own direct investment, as well as co-investment, expect to see up to $1 billion of investment flow to small towns and regional centers across the country over the next five years. Further, if the decision is confirmed the group would immediately move to expand the 4G coverage to reach 99% of the population by later this year. It also paves the way for ongoing investment in the coming years that would see an additional 1.4 million square kilometers of 4G coverage for regional and rural Australia. This means that about 600 base stations will be upgraded from 3G to 4G giving the Australian population access to a world leading 4G network. Overall, the ACCC decision, is significant as the group had invested heavily in providing both coverage as well as quality.
· Issued Bond under Debt Issuance Program: TLS is raising 15 billion euros ($A22.30 billion) through a debt issue in Singapore. The group TLS has announced a AS$1 billion (S$1.06 billion) bond issue under its Debt Issuance Program. It comprised of the three tranches, which includes the A$300 million four-year fixed rate notes with a coupon of 2.90 per cent maturing on April 19th, 2021, A$150 million four-year floating rate notes with a coupon of three-month BBSW (Bank Bill Swap reference rate) + 0.82 per cent maturing on April 19th, 2021 and A$550 million 10-year fixed rate notes with a coupon of 4 per cent maturing on April 19th, 2027. TLS will use the proceeds from the notes for general corporate purposes.
· Offloaded remaining stake in Autohome: TLS has sold its remaining 6.5 per cent interest in Chinese online business Autohome to Ping an Insurance Group for US$217 million (A$282 million based on current exchange rates). The sale price of US$29.30 per share is in line with Autohome’s volume weighted average price over the past 60 days, and Autohome is recently trading at its highest levels in the past 12 months. Further as a result of the sale, TLS’s nominee director to the Autohome Board has resigned.
· Ongoing customer’s growth: TLS in the 1H 2017 has reported on a guidance basis and excluding the impact of regulatory decisions on MTAS and FAD, the total income has increased 2.2 per cent to $13.7 billion and EBITDA increased 2.4 per cent to $5.4 billion. However, the reported EBITDA had decreased 1.6 per cent to $5.2 billion, and net profit after tax reduced to $1.8 billion, including planned restructuring costs. Further, TLS has added 200,000 domestic retail mobile services, 90,000 retail fixed broadband customers, 124,000 bundles, 292,000 nbn connections and 322,000 Telstra TV devices. The underlying core fixed costs got reduced by 2.6 per cent or $92 million. TLS has also finished $1.5 billion share buy-backs in the 1H 2017. Moreover, TLS has continued to add customers across its key products, including mobiles, fixed data and bundles. The decline of fixed voice customer numbers continued at rates lower than most other major global providers. The Mobile revenue impacts included the regulatory changes to voice and SMS terminating charges, lower hardware sales volumes and a higher mix of ‘bring your own’ plans.
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1H 17 Financial Performance (source: Company Reports)
· Capital allocation strategy review: In November 2016 TLS had planned to review the capital allocation strategy over a 6-12-month period. The company took into accounts nbn payments, balance sheet structure and settings, longer term capex requirements post rollout of the nbn, investment decisions including M&A criteria and returns to shareholders including dividends, buy-backs and other forms of returns. Moreover, TLS is since November been consulting with the shareholders and will continue to do so. The company will retain balance sheet settings consistent with an A band credit rating. Additionally, TLS has also completed a $1.25 billion off market share buy-back in October 2016, which was heavily oversubscribed, and a $250 million on market share buy-back in December 2016.
· Strategic Investment for long term benefits: TLS has planned strategic investment of up to $3 billion for the years FY 17-FY 19. The company is investing in the networks for the future of more than $1.5 billion, in digitization of approximately $1 billion and other improvements to customer experience of up to $500 million. Further, TLS will have financial benefits of Return on up to $3 billion extra capex will target run-rate benefits >$500 million per annum (2/3 revenue, 1/3 cost) fully realized by FY21. TLS is targeting aggregate returns more than FY16 ROIC of approximately 14%, consistent with guidelines for organic investments. Moreover, TLS has in 1H 2017 has improved ADSL speeds for more than 500,000 customers in networks for the future segment. In digitization, the company has rolled out the first tranche of Digital capabilities in a new stack retiring 21 applications. TLS has also launched a cross company approach on Agile/DevOps capability, deployed new solutions for agents consolidating nine nbn interfaces into one, to reduce average handling time and improve the first-time resolution.
· New Technology: TLS has come up with a mobile hotspot device Telstra Nighthawk M1. This device is currently the fastest mobile device in the world and can deliver an incredible one gigabit per second download speed. Moreover, TLS has launched Pixel smartphone through an exclusive partnership with Google in Australia. TLS has launched Data Centre Interconnect allowing customers to connect to 30 data centers globally. The acquisitions of Kloud and Readify, have reinforced TLS credentials as a leading provider of enterprise Microsoft products in Australia
· Stock Performance: TLS stock has fallen 16.2% in the last six months as on July 6th, 2017, and has a good dividend yield of 7.05% while trading at a cheap P/E. TLS has reconfirmed FY17 guidance of mid to high-single digit income growth and low to mid-single digit EBITDA growth. The free cash flow is expected to be in the range of $3.5-4 billion and capital expenditure is expected to be approximately 18% of sales. Additionally, TLS has outlined the plans that would see more than $1 billion of investments directed towards the regional and rural Australia over the next four to five years. We maintain a “Buy” recommendation on the stock at the current price of $4.37
TLS Daily chart; (Source: Thomson Reuters)
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