Telstra Corporation Limited

TLS Details

Re-affirmed Guidance consistent with its previous announcement: Telstra Corporation Limited’s (ASX: TLS) stock tumbled 5 per cent on May 14, 2018 after the release of a market update wherein the company reaffirmed its FY18 dividend guidance, but highlighted issues related to fixed and mobile margins driven by many competitive dynamics, along with challenges from the rollout of the national broadband network (NBN). On the other hand, the group seems to be well within the guidance for incremental restructuring costs while FY18 underlying core fixed costs will drop by 7%.

According to the release, the company experienced data volume growth of 50% per annum across both fixed and mobile networks and the range of services supported by its networks increased dramatically during the same period. As per the Strategic investment program, the company announced in 2016 that they would invest up to $3 Bn of incremental capex to accomplish a material step change to capture future opportunities. Since then, the company has invested more than $1.5 bn of capex across two major streams i.e., Digitization and Networks for future. As a result, these investments are supporting mobile differentiation, coverage, speed and resiliency. Further, the company has built its Next Generation OSS platform to deliver real time customer experience monitoring and impact assessment and recovery capability. Backed by robust opportunity in Digitization and Network, the group is expecting capex in the range of $4.4 Bn to $4.8 Bn at the mid of the year. On the other hand, the company added 60,000 new mobile subscribers during the third quarter and additional 36,000 home broadband users with nbn market share of 50%. In-spite of decent volume growth and contracted (by 3.6%) post-paid average revenue per user (ARPU) in Q3 FY18 as compared to prior corresponding period, the company expects that its EBITDA could be recorded at lower end of full year guidance. Based on the April year to date results and 2H FY18 current expectations, income of the company is expected to be in the rangeof $27.6 bn to $29.5 bn for full year while EBITDA is expected at the bottom end of the range of $10.1 Bn to $10.6 Bn for same period. The group continues to focus on reducing costs and expects significant reduction in FY18 underlying fixed costs.


Performance Update (Source: Company Reports)

Recently, the Group announced the appointment of Roy H. Chestnutt as a Non-Executive Director who took his responsibilities from 11^th May 2018.

While the outlook seems to be a bit tarnished with this update, the long-term potential is still intact at the back of strong demand for its services and increased growth in data volumes as connectivity becomes more important. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 3.04, while challenges may prevail into 2019.

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