Telstra has signalled a potential windfall for shareholders from the planned sale of its mobile tower infrastructure after keeping its 16¢ dividend steady despite a sharp decline in half-year earnings.
The telco giant’s chief executive Andy Penn has also dodged speculation about his own future after providing bullish long-term forecasts as his cost-cutting strategy nears its end. Investors responded positively to the dividend declaration and upbeat guidance, pushing Telstra shares up 2.5 per cent to $3.25- a six month high.
MST Marquee analyst Fraser McLeish and Morningstar analyst Brian Han both said the telco was positioning itself for a future without payments from the national broadband network.
“The result itself was weak but all the forward looking stuff was headed in the right direction,” MST Marquee analyst Fraser McLeish said.
Morningstar analyst Brian Han said Telstra’s long-term aspirational targets for fiscal years 2022 and 2023 painted a “reassuring picture” of earnings growth.
“Many investors were still nervous about whether the 16¢ level can be maintained,” he added. “But, more importantly, I think it’s the outlook on underlying earnings and especially free cash flow that is engendering confidence that 16¢ in dividends is more than sustainable.”
Telstra’s underlying earnings before interest, tax, depreciation and amortisation fell by 14.2 per cent to $3.3 billion over the half, due to large payments to NBN Co and an estimated $170 million in damage from the coronavirus pandemic, which caused declines in international roaming revenues and additional expenses for customer support. The pandemic also triggered $100 million in costs from the pause in previously planned job cuts. The redundancy program, which will eliminate a further 2200 jobs by the end of the calendar year, was restarted last week. Telstra increased its cost reduction target to $2.7 billion for the next financial year.
Excluding payments to the NBN and the impact of the pandemic, underlying EBITDA was flat. Telstra said it expects full-year underlying EBITDA in the range of $6.6 billion to $6.9 billion and growth in mobile earnings for the first time in years.
Mr Penn said he was aspiring for mid to high single-digit growth in underlying EBITDA next financial year and between $7.5 billion and $8.5 billion of underlying EBITDA in financial year 2023.
“Telstra needs to be bold,” Mr Penn added. “I am confident we can deliver this if we remain focused.”
Long-term Telstra shareholder Anton Tagliaferro said Telstra’s growth in mobile subscribers was a sign the business can become less reliant on payments from the NBN, which are expected to fall in the next six months.
“Telstra is a company in transition where it’s going from less reliance on the fixed line business and moving towards becoming a mobile player,” Mr Tagliaferro said. “From that point of view, it was great to see that mobile subscribers grew by 80,000 and pricing went up.”
Telstra’s financial results coincided with the announcement that the telco would try and sell a part of its InfraCo Tower division to external investors by the end of the calendar year. Telstra announced in November its group of companies would be split into three separate entities – InfraCo Fixed, InfraCo Towers and Serve Co. Mr Penn said shareholders could reap the benefits of a deal.
“I would be surprised if there wasn’t some element of returning some of the proceeds and value to shareholders, we know that would be an important element of this process,” Mr Penn said. “We’ll talk about more of the specifics of that when we get into the process in the second half of the year.
Mr Penn said he was on track to deliver on his T22 strategy, a three-year plan focused on simplifying the business’ structure and boosting profits by the end of the year.
But he would not go into detail on his own future at the company or whether he would see the strategy through to its completion. “As far as my own plans, we’re looking to announce what comes after T22 in November and I look forward to doing that,” he said.
Mr Penn also announced the company would take full ownership of all retail stores across Australia, in an attempt to improve customer experience and mitigate issues with license holders.
Mr Penn warned the existence of the national broadband network would continue to hurt Telstra unless wholesale pricing model was reviewed. The amount that telcos pay NBN Co for use of the network has been a point of contention for years.
“Going forward, every operator in the country has to pay NBN for access to the fixed infrastructure that sits behind the broadband services,” he said. “Over the next three to four years, I think that’s going to translate directly into cost into the industry and unless the industry increases retail prices and passes that on to customers, it does create an element of the headwind.”
Source: Thanks smh.com