The Telstra Corporation Ltd (ASX: TLS) share price is in focus after the ASX share announced it’s going to spend up to $1.6 billion on infrastructure.
Telstra’s $1.6 billion infrastructure spending plan
Australia’s largest telecommunications business has underlined its market position by announcing two infrastructure projects to support the nation’s digital economy and further improve connectivity.
To deliver both projects, it’s going to spend between $1.4 billion to $1.6 billion outside of its business as usual capital expenditure over the next five years. This translates to around $350 million of capital expenditure per year between FY23 to FY25.
Viasat project
Telstra is going to build and manage the ground infrastructure and fibre network for Viasat, a global communications company. This program will support the new ViaSat global satellite system as part of the 16.5 year contract.
Viasat provides broadband internet services to fixed, mobile and government customers globally. Telstra will be able to leverage existing infrastructure and build and manage high-speed fibre links to hundreds of sites across Australia.
Major new fibre project
Telstra also announced it’s going to build ‘state-of-the-art’ inter-city dual fibre paths. The investment will add up to 20,000 new route kilometres to increase the capacity of Telstra’s already extensive optical fibre network.
This investment will accelerate the growth of InfraCo, while enabling ultrafast connections between cities and improving regional connectivity. It will support a range of uses including remote working, mining, agriculture, entertainment consumption and online gaming. This could be a useful driver for the earnings and Telstra share price.
The new project will commence at scale in late FY22. Discussions with key anchor customers for this fibre network are progressing.
Management comments
Telstra CEO Andy Penn
said: “Our strong cash flows and T25 growth ambitions provide us the flexibility to make these strategic infrastructure investments, whilst maintaining flexibility to return excess cash to shareholders. Together, these investments are expected to deliver incremental long-term accretive growth.”
Final thoughts on the Telstra share price
Telstra is expecting these investments to deliver an annual EBITDA (EBITDA explained) contribution of around $200 million by FY26, delivering a mid-teen internal rate of return (IRR). The payback will be approximately nine years.
These seem like logical and solid projects for Telstra to undertake, with a good profit profile. I think it improves Telstra as a business. Whilst Telstra is not one of my top ASX dividend shares, I think its outlook is much improved and I’d choose it for my own portfolio over the big four ASX banks.
If you’re looking to learn how to do your own ASX company valuations, take our free share valuation course, which takes you through 6 common share valuation techniques, step by step.
Or try our Beginner Shares Course if you’re just starting out. Both are free.
