Reflecting the modus operandi of many companies operating in today's market, Telstra is in the middle of a cost-out to the tune of $500 billion.
"While our cost reduction ambition is being challenged by high inflation, we still expect to achieve the majority of [this growth] by FY25," says Telstra CEO Vicki Brady.
Despite that, it's still managed a 13% lift in net profit to $2.1b, EPS growth of 16%, and a fatter dividend.
How did the market react? Negatively. It balked at the company's decision to hold onto its infrastructure business, InfraCo, after shopping it around to prospective buyers.
Nonetheless, as IMLs Daniel Moore explains in this wire, TLS is weathering well the strain of a tighter economic environment. And it's doing so with higher prices and - ironically - higher net promotor scores!
Note: This interview took place on Thursday 17 August 2023.
Total income of $23.25b (+$5.4b) vs consensus of $23.36b
NPAT of $2.1b (+13.1%)
EBITDA of $7.86b (+8.4%) vs consensus of $7.93b
Capex of $3.60b vs consensus of $3.55b
Final DPS $0.085
EPS of 16.7 cents (+16%)
The result was in-line with expectations, with strong price growth in the mobile division offset by disappointment that the infrastructure division will be retained rather than sold.
Rating: APPROPRIATE
The stock's down 3%, reflecting that short-term disappointment about the lack of sale of the infrastructure business. I think that longer-term that decision's the right choice, but it is a disappointment in the short-term.
No. They're still pushing through prices in their mobile and infrastructure businesses, so we expect further earnings growth and margin expansion.
NPS scores rose to record levels despite strong price rises in their mobile division. It really shows the pricing power of that Telstra brand. It's pretty unusual to have price rises and NPS scores go up.
Rating: HOLD
It's a quality company with a dominant mobile business with strong pricing power. And they also own some essential infrastructure that has some good long-term potential, however that's largely reflected in the share price.
We're positive on the outlook for telecommunications, given that industry returns are still quite low. We're seeing price rises across the sector. The risk would be a change in competitor rationality; if they were to start chasing market share instead of going after improved returns. But at this stage it's looking quite rational.
Rating: 2
Definitely we're cautious. Valuations are quite high and we see earnings risk due to the lagged impact of monetary policy and cost inflation and higher interest costs, which are impacting companies with the highest leverage.
This article was first published for Livewire Markets on Thursday, 17 August 2023.
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