Why the Telstra share price spiked on Thursday
'The proposed restructure is one of the most significant in Telstra's history and the largest corporate change since privatisation,' said Telstra's CEO Andrew Penn.
Investors bid the Telstra Corporation (TLS) share price more than 4% higher during Thursday’s morning session, after the blue-chip telco announced that it would be undertaking a significant corporate restructuring.
As part of this proposed restructure, the company said it intended to create three separate legal entities, sitting within the broader Telstra Group.
These entities include: InfraCo Fixed, set to focus on Telstra's 'passive or physical infrastructure assets'; InfraCo Towers, which would be responsible for operating and overseeing the company's 'passive or physical mobile tower assets'; and ServeCo, which, according to the company 'would own the active parts of network’, including Telstra’s all-important spectrum assets.
Commenting on this radical shakeup – which was described as a core part of Telstra’s much-hyped T22 strategy – CEO Andrew Penn said:
'The proposed restructure is one of the most significant in Telstra's history and the largest corporate change since privatisation. It will unlock value in the company, improving the returns for the company's assets and create further optionality for the future.'
Looking back, it should be noted that Telstra had already established InfraCo as a standalone business entity as part of Telstra’s T22 plan – aimed at improving operating efficiencies and creating optionality’ once the national roll-out of the NBN was complete. With InfraCo now functioning as its own standalone business, Mr Penn said 'now is the time to take the next step in realising our T22 ambitions, including monetisation of our infrastructure assets where appropriate.'
By the afternoon session Telstra drifted somewhat lower, trading to $3.10 per share (+3.51%) by 2:08PM.
Beyond the radical shakeup
Besides updating the market on the telco’s restructuring plans, Telstra also took the chance to re-confirm its previously stated FY21 guidance.
Looking back at these guidance figures, Telstra said for fiscal 2021 it expected to report total income of between $23.2-25.1 billion, earnings (EBITDA) of between $6.5-7.0 billion and capital expenditures of between $2.8-3.2 billion.
Looking further out, while Mr Penn noted that Telstra does not provide guidance more than one year out, with solid progress already being made on the rollout of its T22 strategy, it was noted that 'Telstra believed it would turn underlying EBITDA back to growth by FY22 and was very focused on delivering its ambition to be in the range of $7.5 to $8.5 billion of underlying EBITDA by FY23.’
Should the telco hit that target, it would equate to an approximate return on invested capital (ROIC) of almost 8%.
Despite this positive news, the Telstra share price has drifted lower YTD, falling around 13% since January. Yet despite that share price weakness, the blue-chip telco remains favoured amongst the sell-side – commanding an Overweight rating on average, according to the Wall Street Journal.
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