The Telstra Corporation Ltd (ASX: TLS) share price is on watch after the telco revealed it was launching a share buyback of up to $1.35 billion with its FY21 result.
FY21 report numbers
On a reported basis, total income fell by 11.6% over the year to $23.1 billion. But net profit after tax increased by 3.4% to $1.9 billion.
Reported EBITDA (EBITDA explained) fell 14.2% to $7.6 billion, whilst underlying EBITDA decreased 9.7% to $6.7 billion.
Underlying EBITDA included an NBN headwind of around $650 million in FY21, with a $380 million financial impact from COVID. Excluding the NBN headwind, underlying EBITDA fell $70 million.
The NBN has been a big impact on the Telstra share price and profit over the last few years.
Telstra dividend
As expected, the Telstra board decided to pay a final dividend of 8 cents per share, bringing the full year dividend to a fully franked 16 cents per share. That was the same as last year.
At the current Telstra share price, its current annualised dividend is a fully franked yield of 4.2%.
Share buyback
After the sale of a 49% stake of InfraCo Towers, Telstra said it would return approximately half of the net proceeds back to shareholders.
Telstra is going to return $1.35 billion of that money to shareholders in the form of an on-market share buy-back.
The rest of the proceeds will be used to reduce debt to ensure Telstra maintains balance sheet strength and flexibility.
Other highlights
The telco said that it is delivering on its T22 strategy targets. It has completed, or was on track, to deliver 80% of its T22 scorecard metrics.
Under T22, it has reduced its net full time roles by around 8,300, meeting its T22 goal one year early.
The company noted some of its other smaller businesses. It said Telstra Health grew revenue in FY21 by 6% and expects high-teen growth in FY22. It recently announced the acquisition of MedicalDirector as well as a majority stake in PowerHealth.
Telstra Ventures saw the value of its investment increase by $300 million. The company boasted it’s one of the most successful corporate backed venture firms globally. Of the 74 start-ups Telstra Ventures has invested in, 12 have grown to a value of more than $1 billion and three of those four have increased to be valued at more than $10 billion.
Fy22 outlook for Telstra and the share price
Telstra announced its guidance for FY22, which showed the underlying business returning to full year growth.
Total income is expected to be between $21.6 billion to $23.6 billion.
Underlying EBITDA is expected to come in a range between $7 billion to $7.3 billion.
Telstra is also expecting to generate free cashflow after lease payments of between $3.5 billion to $3.9 billion.
A return to growth is a positive sign, though it’s not making as much profit as it used to.
5G could be an important part of future growth. Telstra boasts it’s one of the world leaders. It now provides 5G coverage to more than 75% of the population with 1.6 million connected 5G devices.
It’s good to see Telstra is expecting profit growth in FY22. For me, the more pleasing thing is seeing good business diversification away from the core telecommunication services. Telstra doesn’t want to be stuck in a price war with 5G and no other options for growth. The buyback is also welcome, whilst also maintaining control of InfraCo Towers.
However, there are other ASX dividend shares I’d rather look at because Telstra doesn’t have significant growth potential.
