Telstra share price: analysts remain bullish heading into H1 results

We examine some of Telstra's key fundamentals, focus points and the analyst outlook before the telco reports its first-half results on 13 February.

Over the last two decades Australia’s telecommunications industry has faced a radical shakeup: as technologies advance, consumer tastes change, and aggressive upstarts enter the market.

Front and centre to these changes has been Telstra (ASX: TLS) – Australia’s largest blue-chip telco.

Though retaining the title of Australia’s largest telecommunications provider – with a market capitalisation of ~$45 billion – things have changed significantly for Telstra over the last 20+ years.

Looking back, when the telco released its first ‘Annual Review’ in 1998, it reported total revenue of $17.3 billion, against earnings (NPAT) of $3.0 billion. Telstra was not only Australia's largest listed company back then, but also its most profitable.

Fundamentally, Telstra’s bottom-line hasn’t changed much since then, with earnings coming in at $2.7 billion in FY19. Its revenue has also ticked up nicely. But it is no longer Australia’s most profitable company, nor its largest.

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Telstra share price: at inflection point?

Analyst sentiment seems to suggest that Telstra is currently at a turning point: with 10 of the 16 analysts covering the stock rating it a buy, according to Bloomberg Data. This comes after a period of protracted bearishness around the stock: in the last five years the Telstra share price has declined ~40%.

In saying that, Telstra, wielding the might of a $46.15 billion enterprise, means the company is well positioned to capitalise on the transition from 4G to 5G.

If there is one constant in life and business after all, it is change. And make no mistake, this inflection point, and the change that could follow, is a deeply important one for Telstra.

‘I would absolutely say that our expectation would be that we would see ARPU and services revenue growth as we come into this 5G period,’ said Vicki Brady, Telstra’s Chief Financial Officer.

Other aspects of the business, like Andy Penn’s T22 strategy are positioned as a ‘game changer’ for the company.

Here, the telco aims to simplify its business model, spin off its infrastructure business unit (InfraCo) and reduce costs.

Andy Penn, describing 2019 as a pivotal year for the company, further said:

'We completed our strategic investment program announced in 2016 to digitise our business and create the networks for the future, delivering over $500 million of EBITDA benefits. We passed the halfway mark of customers migrating onto the nbn network. We launched 5G, the next generation telco technology.'

Some time may be required

In saying all this, Macquarie Wealth Management notes improvements in Telstra’s fundamentals may not be so readily apparently in the telco’s upcoming H1 results – due out this Thursday. Mobile earnings – which account for 48% of Telstra’s earnings (EBITDA), are expected to 'feel the full impact of price and data wars from 2018,’ in 1H20, notes Macquarie.

But, and it’s a an important ‘but’ here, the investment bank does posit that the:

‘Improvement in ARPU, revenue and EBITDA trajectory during CY2020 should be a positive thematic for Telstra over the next 12 months.'

Bloomberg analysts support Macquarie's first point, arguing that Telstra’s earnings (EBITDA) have likely continued to ‘decline’ in the first-half of FY20.

The Telstra share price traded at $3.88 per share a little before noon.

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