The Telstra Corporation Ltd (ASX: TLS) share price has been drifting lower, where to next for the share price?
Telstra is our country’s oldest telecommunications business, having built the first telegraph line in 1854. In 2019, it provides more than 17 million retail mobile services, around 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services. Telstra also has operations in eHealth, network applications and subsea cabling. In 1997 (until 2006), the Government sold Telstra to Australian investors by listing the shares on the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
What’s Going To Happen Next With The Telstra Share Price?
It has been a very odd last 12 months for the Telstra share price. We saw it fall to as low as $2.74 at the end of last year as NBN concerns intensified and global & local share markets dropped on trade war concerns.
But then Telstra went on to be one of the best performing blue chips since then, rising 45.6% to almost $4. But since then it’s dropped back 8.5%.
So what’s next? The FY19 result was not confidence inspiring. Telstra reported that its total income fell by 3.6% to $27.8 billion, Telstra’s EBITDA (click here to learn what EBITDA means) dropped by 21.7% to $8 billion and net profit after tax (NPAT) declined by 39.6% to $2.1 billion.
Telstra put the blame for the decline in income and profit on the NBN. Management said Telstra suffered a negative $600 million of recurring EBITDA during the year. Underlying EBITDA would have only fallen by 4% excluding the NBN headwinds.
But the NBN is a problem. It’s such a large factor affecting Telstra that I don’t think we can discount or ignore it. It’s the reported bottom line which is the indicator of how much value has been made (or lost) during the year and what direction a sustainable dividend is headed.
People think of Telstra is a good dividend share, but in the past I think its dividend was unsustainably large and now the dividend continues to fall. The total year dividend was cut to 16 cents per share, a cut of around 27% for the year.
Telstra has warned that it’s expecting further revenue and probably more EBITDA declines in FY20 as the NBN bites further into its profit. Low cost competition from TPG Telecom Ltd (ASX: TPM) and others isn’t helping profit margins.
The telco is currently valued at 17 times the estimated earnings for the 2020 financial year and the fully franked dividend yield is 4.35%.
Until all the negative NBN issues have flowed through, I don’t think Telstra can grow its profit. 5G will be very important for future profit, but we don’t know how that’s going to play out for Telstra yet. I’d much rather buy the reliable shares revealed in the free report below.
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.