Weekly Buy Recommendation: Telstra (TLS)

Telstra Corporation Limited (TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

TLS owns a 50% stake in Foxtel while Newscorp (NWS) and Consolidated Media Holdings (CMJ) hold 25% each.

Results confirm turnaround

TLS’s 1H FY12 results showed a return to EBITDA growth after years of stagnation. EBITDA grew 3.7% to $4,750 million when compared to the $4,580 million in FY11.

Total revenue climbed by 1.1% to $12,419 million, whilst operating expenses declined 1% to $7,751 million over the same period.

One of the major earnings drivers for the company is its mobiles products; revenue was up 10.9% to $4,393 million year on year. Revenue from this product line alone makes up of one-third of TLS’ revenue.

The growth in Mobiles is impressive, especially when considering EBITDA margin of 34% was considerably higher than Optus’ 25.9% and Vodafone & Three’s 16.3%.

TLS has the only 4G network in Australia and with many new mobile phones being designed with 4G capabilities, the company can continue to experience strong growth in this market.

$11 billion NBN booty

Earlier this month TLS finalised its definitive agreements with NBN Co and the government for its participation in the NBN rollout.

The agreement will provide the company with approximately $11 billion in post-tax net present value over the long term life of the agreement.

The $11 billion includes compensation from the government for decommissioning its copper network and allowing the NBN to use some of its infrastructure.

In a strategy update on April 19^th, TLS said it expected to generate $2 – $3 billion in free cash flow over the next three years, subject to the NBN roll out schedule and market conditions.

TLS also said that it didn’t have the franking capacity to increase dividends before 2014 and that it had no immediate plans for a share buyback.

Arguably a better longer-term share price driver for a company is the implementation of a dividend increase over a buyback.

A dividend increase signals confidence in the long-term prospects of a company, and that TLS’ management has recognised this is a positive thing for shareholders.

Widening yield differential signals positive outlook

TLS is currently trading on a forecast yield (28c for FY12) of over 8.5%, fully franked. This is equivalent to 12.1% pre-tax.

TLS has been able to maintain a 28 cent per share dividend since FY07 and has forecast the same amount for FY12 and FY13.

Given the healthy sums of cash TLS is generating and following this month’s strategy update, we would anticipate a dividend increase from 2014.

When considering the next likely move in interest rates is down, we believe income-oriented investors will increasingly prefer TLS’s dividend yield over potentially lower interest rates on their savings accounts.

As such we think TLS is a stock to watch in the coming months.

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TPG Telecom Limited wholesales bandwidth and other telecommunications services. The Company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations.

Telecommunications Stocks TPG announced its 1H FY12 earnings, showing a net profit of $55.7 million a 65% increase on the prior corresponding half. The results beat analyst expectations.

Revenue grew 17% to $324.5 million over the same period.

The company said that the growth continued to be driven by its home bundle plans, which grew by 49,000 in the half.

The company declared a 2.75 cent per share dividend, fully franked.

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Telstra (TLS) Finalises Deal For NBN Network

Telstra Corporation Limited is a full service domestic and international telecommunications provider for Australia.

The Company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. Telstra also provides data, internet, on-line services and directory services.

Telecommunications Stock Telstra announced that it has finalised its $11 billion agreement with the federal government and NBN co for the rollout of the National Broadband Network (NBN).

The agreement will see Telstra receive close to $11 billion over the life of the agreement, which ensures that the company’s infrastructure will be used by the NBN.

CEO David Thodey said that Telstra has concluded almost three years of intense and complex negotiations and is pleased to deliver this positive outcome for customers and shareholders.

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Telstra (ASX:TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Despite its troubles in recent years, TLS is a staple holding among retail investors and is still widely considered a blue chip stock.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

Today, TLS reported a 16.8% decline in FY11 net profit to $3.23 billion, although the result topped analyst expectations of a $3.09 billion profit.

Total revenue grew 0.7% on-year, whilst EBITDA fell 12.4%, matching TLS’ previous guidance.  A final dividend of 14 cents was declared, bringing the full year dividend to 28 cents.

TLS forecast a similar full year dividend in FY12, but this time was expecting low single digit growth in revenue and EBITDA.

The group based its forecast on the recent improvement in customer satisfaction as well as initiatives to simplify the company.

TLS has been one of the shares to buy today following the release of its results.

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Telstra (TLS) is a provider of telecommunications and information products and services, arguably Australia’s dominant telco company.  TLS has also long considered among the market’s blue chip stocks.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

TLS has been one of the shares to sell almost since the T2 float, independent of economic conditions, as customers have been shifting away from spending on landline products.

On 26 November, the Australian Senate has passed a bill to split TLS into separate retail and wholesale networks.

TLS will be required to give up parts of its existing copper-wire network in order to make way for the rollout of a fibre-optic network.  In return, the group will receive $11 billion in compensation.

CEO, David Thodey, said the compensation will be used to help fund acquisitions, pay down debt and/or initiate a share-buyback.

The bill will now head to the lower house for final approval.

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Telstra (TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

TLS has historically been considered among the blue-chip stocks due to its market cap and generally high dividend yield.

However, recent troubles have seen TLS become one of the shares to sell.  Its stock price has sunk to all-time lows as speculation mounts that poor earnings are likely to see its dividend cut.

On 29 September, TLS reiterated its FY11 earnings guidance, stating that it still expects revenue to be flattish and that it will comfortably be able to fund a 28 cent dividend.

TLS plans to spend $1 billion in order to grow its market share and improve customer service – a strategy designed to reinvigorate revenue growth.

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Telstra (TLS) is Australia’s largest telecommunications provider and is a major mover on the ASX. Its main activities include the provision of; local and long distance telephone calls, mobile phone services, broadband access, search and information services, and the Foxtel cable service.

TLS has reported a 4.7% slump in FY10 net profit to $3.9 billion, which was in line with analyst estimates, although sales revenue declined 2% from a year ago.

Revenue dropped the most at TLS’s fixed line (PSTN) division, which continues to see an exodus of customers migrating to its competitors’ wireless services.

Most worrying however was the group’s forecast for flattish sales growth in FY11, indicating that its plans to transition away from fixed line services to wireless broadband offerings are going to take time.

TLS declared a final dividend of 14 cents per share, which was also in line with market consensus.

Australian stock price for TLS plunged 9.5% after its weak sales forecast.

Current Australian shares to buy are iiNet Ltd.

iiNet Limited (IIN) has announced it will buy out fellow ISP Netspace for $40 million. The deal appears to be a smart move by IIN, making it one of the shares to buy.

The acquisition will be 100% debt funded, and is expected to be completed by the end of next month.

The acquisition will increase IIN’s exposure in its key markets of Victoria, NSW, and Tasmania. Adding Netspace will grow IIN by about 20%, and boost its market share from 12.4% to 15%.

IIN expects the acquisition to generate over $70 million in revenue, and to add to earnings from next financial year.

This doesn’t even take into account the potential for synergies to boost the bottom line. Given the similarities between the businesses, synergies should be significant.

In terms of shares to buy, IIN soared 7% on the day the deal was announced.  Such a strong rise likely means the market has given the deal a tick of approval.

Telstra is Australia’s largest telecommunications provider, with its main activities including the provision of; local and long distance telephone calls, mobile phone services, broadband access, search and information services, and the Foxtel cable service.

Telstra’s recent troubles are a major reason why it is currently one of the shares to sell.

Currently, it is involved in a fight with the Federal government over the breakup of its wholesale and retail businesses, and this is causing much uncertainty among investors.

It is this uncertainty that is contributing to the downward pressure on Telstra’s stock price.

The Federal government has postponed debate on breaking up Telstra until later this week.

In other news, Telstra has successfully completed a EUR1 billion bond issue.

The bond was around six times oversubscribed, which represents a successful foray into the debt market by Telstra.

The successful raising of such a large amount of capital is seen as a vote of confidence in Telstra among fixed-income investors.

Telstra’s share price has recovered somewhat from recent lows, however it is still in an overall downward trend, and the performance of the stock warrants its status as one of the shares to sell.