The Telstra Corporation Ltd (ASX: TLS) share price has suffered since February 2015. It’s down over 40% since then. But is it a buy now?
Australia’s biggest telecommunication has a large mobile customer base, a good market share of home broadband customers and a number of other divisions which add value to the business.
Why the Telstra share price could be a buy
The last several years have seen Telstra’s share price and profit suffer from the transition to the NBN.
In the past, Telstra owned most of the underground cables in Australia. It would earn high margins on Telstra broadband customers and it would still make money on other customers for different providers using the network if they used those cables as well. Telstra lost that strong market position when it sold its cables to the NBN.
But, the transition to the NBN has finished. This means that Telstra’s profit isn’t declining anymore, which is a positive.
On top of that Telstra, has been working hard at reducing costs within its business with its T22 strategy and now the newly-announced T25 strategy.
While it’s a smaller business than it was, Telstra can kick on from here. 5G is enabling the business to invest and get ahead of its rivals. It’s so far ahead in the regional areas that TPG Telecom Ltd (ASX: TPG) (which includes Vodafone Australia) has signed a deal with Telstra so its customers can access the regional network, so Telstra wins either way.
Telstra recently acquired Digicel Pacific, which gives it exposure to a number of Pacific island nations where it’s now a leader, and gives it earnings diversification. The telco is also building Telstra Health, which is tapping into the strong tailwind of ageing demographics and the increasing technological nature of the healthcare world.
One of the most interesting aspects about the Telstra share price to me is that inflation can now be a boost. Telstra has said it’s going to increase its prices for customers in line with CPI inflation. Industry competition on price may have not allowed that to happen in previous years, but now Telstra’s revenue can get a free kick if it keeps raising prices at the pace of inflation.
Finally, the FY22 result came with a surprise – growth of the dividend. If this means Telstra is going to keep growing its dividend on a regular basis, then that’s very good news for income-focused investors.
Final thoughts
I think the Telstra share price and profit are looking at a positive future, particularly with its market position with 5G. The potential for Telstra to offer 5G-powered home broadband (and cut out the NBN) is promising for its future ‘fixed’ business’ margins. Telstra is expecting profit growth in the next few years.
While I certainly wouldn’t put Telstra at the top of my wishlist, for investors that are looking at the ASX share, I think things are looking very promising now.
