3 reasons for optimism on Telstra result
Critics of Telstra's 1H19 earnings result ignore the positive signs on its crucial NBN-proofing and other measures to help secure long-term earnings, says Morningstar's Brian Han.
Mentioned: Telstra Group Ltd (TLS)
Brian Han: There were three areas that we were looking for in this result. Firstly, we were interested to see how well that Telstra fightback strategy is going in terms of retaining existing customers and chasing after new customers. So, on that front, the progress is really good. For example, in mobile, they gained 239,000 postpaid mobile customers. That is much higher than we or the market had expected. So, that's a good thing. Now, there is a cost to chasing after customers so hard. For example, again, in mobile division, the mobile EBITDA margin actually fell 300 basis points to about 36 per cent and average revenue per user fell about 2 per cent.
So, the second area we are really interested in is how is the $2.5 billion cost-out program, how is that going to offset these things. And on that front, I think the progress is encouraging. Costs are being stripped out. Now, it is a very big program involving many employees and a lot of restructuring and it is very early days. But from where we sit, I think the early signs are encouraging.
Now, the third area we were interested in is obviously the dividend. Interim dividend came in at $0.08 per share. Now, we were looking for $0.075. So, on that front, it's positive. But I think it may have disappointed the market which was, I think, looking for around $0.09, maybe even $0.095. In our opinion, whether it's $0.08, $0.09, or $0.10, it really doesn't matter in the grand scheme of things. What really matters now is that Telstra shareholders realise that the days of Telstra paying out 100 per cent of its earnings are over and we think it's more important that Telstra keeps its powder dry, continue to compete hard for customers so that it can secure its earnings longer term.