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Telstra - Sound FY21 results while FY22 earnings guidance and on-market buy back is a positive

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Telstra Corporation Ltd (ASX: TLS) is the largest telecommunications and technology company in Australia. Telstra offers a full range of communications services and is competing in all telecommunications markets. In Australia, Telstra provides 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$45.9 billion.

telstra tls


What are the key features of Telstra’s FY21 results?

The FY21 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 FY21 decreased 11.6% to $23.1 billion and net profit after tax increased 3.4% to $1.9 billion. Underlying EBITDA declined 9.7% to $6.7 billion. Excluding the in-year NBN headwind (which gives the clearest view of the long-term business), underlying EBITDA fell by approximately $70 million. Basic earnings per share for FY21 is 15.6 cents. These outcomes are broadly in line with Telstra’s guidance.


What is Telstra returning to shareholders?

Telstra will pay a fully franked final dividend for HY21 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 FY21 is 16 cents per share, which is the same amount as in FY20. This means that Telstra is returning about $1.9 billion in dividend payments in FY21. In addition, Telstra is paying slightly over 100% of its underlining earnings in ordinary dividends.

In addition, Telstra announced it would return approximately 50%, or up to $1.35 billion, of net proceeds from the sale of 49% of the Telstra InfraCo Towers business to shareholders during FY22 via an on-market share buy-back. This is a positive for the Telstra share price.


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 $21.6 to $23.6 billion (FY21: $23.1 billion), underlying EBITDA in the range of $7.0 to $7.3 billion (FY21 $6.7 billion), capital expenditure of $2.8 to $3.0 billion, and free cash flow after operating lease payments of $3.5 to $3.9 billion. The return to growth of underlying EBITDA is positive.


What is the market reaction to Telstra’s HY20 results?

The market’s reaction to Telstra’s HY21 result is positive, with the share price up 3% to around $3.95 (12 August 2021). This rise probably reflects that the market’s reaction to the on-market share buy-back and Telstra’s guidance of a return to positive growth in earnings for the first time in a number of years. Telstra has a forward P/E ratio in the mid-twenties and an annual dividend yield of around 2.5% (excluding the special dividend).


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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