Telstra Group Ltd (ASX: TLS) shares look very good value to me now, I’m calling it a longer-term buy.
The last decade has not been a good period for shareholders – it’s down around 25% compared to where it was 10 years ago. But, I think it’s a fairly different business now and it’s an opportunity.
There are a few different reasons for my positivity on Telstra shares.
Solid revenue growth
A key input for almost any business is its revenue – it’s what (sustainably) pays for the expenses and hopefully makes profit.
Telstra’s subscriber numbers continue to grow, partially thanks to population growth but also because the business has what’s seen as the leading network in Australia.
It’s also benefiting from the return of international visitors to Australia, who pay roaming charges.
I’m hopeful that Telstra will be able to continue to strengthen its 5G network, which could allow it to offer competitive 5G-powered home broadband. This would mean it’s able to capture more of the margin compared to customers on the NBN.
Profit margin improvement
Telecommunications is the sort of industry which can benefit from operating leverage. By that, I mean Telstra has built its network, and additional users means it’s spreading the cost of the network across more subscribers, which is helpful for increasing margins.
When profit margins rise, it means profit can increase faster than revenue, and it’s profit that ultimately investors are (usually) valuing Telstra shares on.
Diversification
Telstra is building its business to be more than just an Australian telecommunications company.
It has a growing presence in cybersecurity after an acquisition.
The company has a big market share of the telco market in several Pacific island nations through Digicel Pacific.
It’s also growing in the digital healthcare space, which makes a lot of sense to me.
Growing dividend
Telstra is back to growing its dividend again for shareholders, which is a great way for investors to benefit from the growing profit without needing to sell Telstra shares.
It’s not the biggest yield in the world, but it’s a very good start and if the payout keeps growing then investors can be happy.
Its FY23 dividend yield is 4.3%, excluding the bonus of franking credits.
