Telstra Corporation Ltd (ASX: TLS) is currently holding its annual general meeting (AGM), is its share price a buy?
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.
Telstra’s AGM Highlights
Telstra Chairman John Mullen started out by boasting that its T22 strategy is the “most radical and ambitious being undertaken by any telecommunications company in the world today.”
In 2019 the telco giant has reduced 1,800 consumer and small business plans to just 20 in market plans, there are no lock-in contracts on all new consumer and small business fixed & mobile plans and it has ended excess data charges in Australia on new mobile plans.
Since FY16 the company has achieved around $1.2 billion of annual cost reduction with a further target of $630 million this year. The company is apparently on track to achieve its target of a $2.5 billion annual reduction of underlying fixed costs by FY22, partly due to its 6,000 direct employee reductions.
But Telstra did say that many of the people that are being let go used to work for the business that is now owned by the NBNco.
Interestingly, the chairman also said: “And while we may not like it, the days of Telstra’s high legacy margins and 100% dividend payout ratio are not coming back either.”
But he had a lot of criticism for the NBN and the government. He described the NBN as a state-owned monopoly which is going to cost the country more than $50 billion yet Australia’s broadband fixed line is ranked the 58th fastest in the world.
Despite that, Australia was rated as having the second fastest mobile networks in the world after South Korea.
Telstra is only halfway through the economic headwind that the NBN is creating, or $1.7 billion in annual terms since FY16, with over 60% of Australian homes now connected. But it has caused profit / earnings per share (EPS) to fall by up to 50%.
He strongly criticised the NBN for starting to sell directly to enterprise customers, when that wasn’t its original mandate. It was supposed to be a wholesale provider only.
Telstra said that was unfair if the NBN can sell to telco customers but telcos can’t invest in infrastructure to sell to retail customers. It said it was a waste to delay giving consumers NBN access and instead duplicate high speed fibre for no service or speed advantage. Third, Telstra said it wasn’t fair because the government’s ownership gives it very significant cost of capital advantage.
Summary
Telstra is valued at 18 times the estimated earnings for the 2021 financial year according to CommSec.
I am not interested in Telstra at this share price, it’s still expecting profit declines and the technology boom of things like automated cars is still a number of years away. It doesn’t have such a large dividend yield these days either.
I think there are plenty of businesses which are more reliable and better valued, such as the ones in the free report below.
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