The Telstra Corporation Ltd (ASX: TLS) share price fell 2% today after reporting its half year result.
Telstra is Australia’s largest and oldest telecommunications business, having built the first telegraph line in 1854. Today, it provides more than 17 million retail mobile services, nearly 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services. It also has operations stretching across eHealth, network applications and subsea cabling. Starting in 1997 (until 2006), the Australian Government sold Telstra to Australian investors via the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
Why The Telstra Share Price Fell 2%
The Telstra share price fell 2% despite the telco saying that it is on track to achieve its FY19 guidance for total income $26.2 million to $28.1 million and EBITDA (excluding restructuring costs) of $8.7 billion to $9.4 billion.
There are several factors why shareholders may have been disappointed with the result, particularly with the dividend being cut from 11 cents per share to 8 cents per share. Other factors included the telco making repeated references to increasing competition in mobile, profit reduction due to the NBN and also that free cash flow would come in at the lower end of its guidance of $3.1 billion to $3.6 billion.
Will things turn around any time soon? Telstra Chief Executive Officer Andy Penn said: “As previously stated in our disclosures and guidance, we expect to see these factors continue to weigh on our revenue over the short-term.”
Is there any hope for Telstra shareholders?
The key could be 5G. Mr Penn said that Telstra is now 5G-ready. Telstra has successfully completed tests in real-world conditions and developed exclusive partnerships with device manufacturers.
These agreements mean that Telstra can sell 5G devices before its competitors when they are released in the next few months. Mr Penn said that Telstra currently has global leadership on 5G.
Telstra’s other big focus is cost reductions. Telstra is aiming to achieve $2.5 billion of net productivity improvements by 2020. In the first half of FY19 underlying fixed costs were down $162 million, or 4.2%.
I do not believe Telstra will be a great investment over the next couple of years if it continues to face revenue pressures. A falling dividend is another sign of why shareholders should be wary of choosing shares simply for a high yield.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).