Telstra Shares Rally Despite Tough Year

By Glenn Dyer | More Articles by Glenn Dyer

Yes, there was more pressure on Telstra shares yesterday – upward pressure after they hit their highest price since May, despite the telco reporting a full-year profit drop of 8.4% cent to $3.56 billion.

Telstra shares were up 16 cents, or 5.8%, to $3.03, despite the company warning increased competition and the continued rollout of the NBN will hurt their bottom line in the coming financial year.

The company also declared a final dividend of 11 cents a share, down from 15.5 cents a year earlier and leaving the full year dividend at 22 cents, down from 31 cents a year ago. That wasn’t a surprise.

Total revenue for the 12 months to June 30 was steady at $26 billion, with mobile revenue flat at 0.4% and fixed line revenue falling by more than 9%. NBN connections grew by 770,000 to 1,946,000 for a total market share – excluding satellite – of 51%.

In May, Telstra launched unlimited mobile data plans and scrapped excess data charges in an effort to attract and retain data-hungry customers.

The move was a part of the company’s new Telstra2022, or T22, strategy, announced in June, aimed at simplifying customer experience and reducing cost base.

The strategy includes the slashing of a quarter of the telco’s workforce.

Telstra forecast core earnings in the June 30, 2019 year to be in the range of $8.8 billion to $9.5 billion, excluding restructuring costs of about $600 million.

Despite the warning Telstra shares rose more than 2% to $2.97 in early trading, despite a sharp fall in the wider market after a Wall Street sell-off.

In a letter to shareholders from CEO Andy Penn and chairman John Mullen said the company was “operating in times of enormous challenge and change” with mobile competition tipped to get even more intense as a fourth entrant, TPG Telecom, moves into the market with a new network.”

“Despite the challenges in the market in fiscal 2018, our results are in line with guidance and show strong subscriber growth in both fixed and mobile,” the letter said.

And looking to 2018-19 the letter pointed out that the new corporate plan from nbn co might force the guidance for the year to be recast, a move that investors will nervously await.

"FY19 is a very material year in the migration to the nbn and its impact on our business. This guidance is based on management’s best estimates and may need to be adjusted when nbn co releases its Corporate Plan, which is expected on 31 August 2018,” the company warned in its statement to the AS wth the 2017-18 results.

"The FY19 guidance has not changed from that provided on 20 June 2018 at Telstra’s announcement, except to adjust for the impact of a new Australian Accounting Standards Board accounting standard (AASB15). The result of the adjustment is that FY19 income guidance has decreased by $100 million and EBITDA guidance has increased by $100 million.

"In FY19 we expect income in the range of $26.5 to $28.4 billion and EBITDA (excluding restructuring costs) of $8.8 to $9.5 billion. FY19 additional restructuring costs are expected to be around $600 million.

"FY19 net one off nbn DA receipts less nbn cost to connect are expected to be between $1.8 and $1.9 billion. Capital expenditure is expected to be between $3.9 to $4.4 billion or approximately 16 to 18 per cent of sales, and free cashflow is expected to be in the range of $3.1 to $3.6 billion.”

“Despite the challenges in the market in FY18 our results are in line with guidance and show strong subscriber growth in both fixed and mobile,” directors said.

"We saw strong customer growth for the year and good progress on our productivity program, but the continued downward pressure on EBITDA and NPAT caused by the further rollout of the nbn and lower Average Revenue Per User (ARPU) reinforced the importance of our T22 strategy.

"During the year we added 342,000 retail mobile customers, 88,000 retail fixed broadband customers and 135,000 retail bundles. However, challenging trading conditions are expected to continue in FY19, including ongoing pressure on ARPU and further negative impact of the nbn network rollout on our underlying earnings.”

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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