The 5% lift in Telstra's (ASX: TLS) fiscal 2022 first half underlying EBITDA masked a stellar showing from mobile. The key division delivered a 25% jump in EBITDA with margin surging by 860 basis points year on year to 41.8%.

Unfortunately, the fixed-line units (consumer, enterprise, wholesale) suffered a 24% decline in aggregate EBITDA and would have been worse had network applications services (NAS) not achieved a 67% jump in EBITDA. The outlook is not much better, with midteens margin target for reselling NBN (currently 4%) pushed back two years to fiscal 2025. Furthermore, newly split InfraCo-Fixed and Amplitel-Towers are structured as steady, resilient earnings generators, not growth contributors. In fact, their combined first-half EBITDA was down 10% due to declining NBN commercial works for InfraCo-Fixed.

As such, we retain our forecasts and project 6% growth in group underlying EBITDA to $7.1 billion for fiscal 2022−consistent with management's reiterated $7.0 to $7.3 billion guidance. The growth engine in mobile is beginning to gain momentum, reflecting Telstra's network coverage leadership as the industry transitions to 5G and the resultant operating leverage, especially as products and cost efficiency continue to improve. However, Telstra is still carrying several legacy businesses that dilute mobile's resurgence. This is why the group is following up the T22 restructure with the T25 program, to continue a group-wide efficiency drive and canvas growth vehicles to offset the challenges in fixed-line.

We see the risk-reward proposition as evenly balanced at current prices, with shares in narrow moat-rated Telstra trading broadly in line with our fair value estimate.

In terms of result details, fiscal 2022 first-half group reported EBITDA fell 12% to $3,466 million. This is because the 5% increase in underlying EBITDA was diluted by the 76% slump in one-off national broadband network, or NBN, receipts to $125 million. That flowed to a 36% decline in net profit after tax to $698 million, exacerbated by higher effective tax rate. 

Telstra declared an interim dividend of 0.08, as expected.

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