Telstra's earnings and dividend outlook upgraded after mobile price increases

Wed 10 Jul 24, 11:21am (AEST)
Source: Telstra

Key Points

  • Telstra is raising mobile plan prices by $2-4 per month, outpacing inflation, citing increased network usage and costs. The hike will be effective from August for postpaid and October for prepaid plans
  • Analysts are optimistic about Telstra's earnings outlook, with Macquarie upgrading EPS forecasts for FY25-27 and predicting a dividend increase to 9.5 cents per share in 1H25
  • Major brokers maintain "Buy" ratings on Telstra, with Goldman Sachs and Macquarie raising price targets

Telstra (ASX: TLS) is hiking mobile phone plan prices over the coming weeks at a rate that outpaces the rate of inflation – and analysts are all for it.

The $2-4 per month price increases will be effective on Telstra's postpaid mobile plans from 27 August and its pre-paid mobile plans from 22 October.

"It takes a lot of work and cost to run a mobile network as large as ours, and even more to support the increased usage we have seen on our network," the company said in a statement.

"Over the five years to end FY24, network traffic on Telstra’s mobile network has increased by approximately 3.5x and continues to grow by 20% per annum."

Telstra shares rallied in response to the price increase, up 2.2% on Tuesday to a near three-month high. The upward trend continued into Wednesday, as the stock opened 1.6% higher.

In Telstra's defence, the company said that telecommunications pricing (which covers all telco equipment and services), has not increased for consumers anywhere near the rate of other consumer goods and services.

2024-07-10 10 44 22-We-re making some changes to our mobile pricing this year, here-s why
Source: Telstra

Higher earnings, dividend upside

"One of our prior concerns was the dividend growth outlook. With the better-than-expected mobile pricing outcome, we think the dividend outlook has improved," Macquarie analysts said in a note on Wednesday.

They now expect a dividend increase to 9.5 cents per share in the first-half of FY25, up 5.6% compared to the prior period.

The timing of the price increase will not affect the current FY24 reporting period, according to Macquarie. The analysts expect the group to report FY24 EBITDA of $8.2 billion, in-line with its $8.2-8.3 billion guidance. However, they made notable adjustments for the next two years:

  • FY25 EPS forecast up 8% (from 18.0 cents to 19.4 cents) to reflect the larger-than-expected price increase

  • FY26 EPS forecast up 14% (from 19.7 cents to 22.5 cents) reflecting the full period benefit and the expectation of one more price increase

  • FY27 EPS forecast up 17% (from 19.7 cents to 23.1 cents)

Separately, Goldman Sachs says the price increase should provide greater confidence around its FY25 guidance. The estimates "should likely be narrowed to $8.5-8.7 billion at its August 2024 result (from $8.4-8.7 billion) which would be its typical $200 million range," the analysts said.

Buys all round

Analysts were universally positive on the price increase. Some of the notable ratings and price target changes since the announcement include:

  • Goldman Sachs retained a Buy and raised its target price by 1% to $4.30

  • Macquarie upgraded to a Buy from Neutral and raised its target price by 19% to $4.40

  • UBS retained a Buy and kept its target price unchanged at $4.40

"We reiterate a Buy on Telstra, given our confidence in its ability to continue to lead the market on mobile price recovery. Telstra is offering 5.3% dividend yields which we view attractive for 8% dividend per share (CAGR) over the next three years," said UBS analysts.

The next upcoming catalyst for Telstra will be its FY24 results on 15 August 2024.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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