Telstra Corporation Ltd (ASX: TLS) is one of the largest telecommunications and technology companies in Australia. Telstra offers a full range of communications services and is competing in all telecommunications markets. In Australia, Telstra provide 18.3 million retail mobile services, 3.7 million retail fixed bundles and standalone data services and 1.4 million retail fixed standalone voice services. Telstra has a market capitalisation of around A$40 billion.
What are the key features of Telstra’s FY20 results?
The FY20 results show that Telstra continues to face significant headwinds relating to issues around the migration of the fixed line telephone business to the National Broadband Network (NBN). On a reported basis, total income for FY20 decreased 5.9% to $26.2 billion and net profit after tax decreased 14.4% to $1.8 billion. Underlying EBITDA declined 9.7% to $7.4 billion. Excluding the in-year NBN headwind (which gives the clearest view of the long-term business), underlying EBITDA grew by approximately $40 million, with growth in the first half of the year offset by a second half decline. Underlying earnings per share for FY20 is 10.1 cents. These outcomes are broadly in line with Telstra’s guidance.
Telstra will pay a fully-franked final dividend for FH20 of 8 cents per share, comprising a final ordinary dividend of 5 cents per share and a final special dividend of 3 cents per share. The total dividend for FY20 to 16 cents per share, comprising 10 cents per share ordinary dividend and 6 cents per share special dividend. Effectively, Telstra is paying close to 100% of its underlining earnings in ordinary dividends.
What is the outlook for Telstra?
Telstra’s management provided financial guidance for FY21 on a range of metrics. For FY21, total income is expected to be in the range of $23.2 to $25.1 billion (FY20: $26.2 billion), underlying EBITDA in the range of $6.5 to $7.0 billion (FY20 $7.4 billion), capital expenditure of $2.8 to $3.2 billion, and free cash flow after operating lease payments of $2.8 to $3.3 billion. The NBN headwind for FY21 is expected to have a negative impact on underlying EBITDA of approximately $700 million. To achieve growth excluding this NBN headwind, underlying EBITDA will need to be around the mid-point of the guidance range.
What is the market reaction to Telstra’s HY20 results?
The market’s reaction to Telstra’s HY20 result is negative (13 February 2020), with the share price down 7% to around $3.14 (13 August 2020). This fall probably reflects that the market is disappointed with the earnings outlook provided by Telstra’s management. Telstra has a forward P/E ratio in the low-teens and an annual dividend yield of around 3% (excluding the special dividend).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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