Telstra earnings watch: 4 things to consider ahead of 2019 results

Here are four key things that investors should consider before the A$11 billion telco giant – Telstra – reports its 2019 results to the market this Thursday.

Telstra (ASX: TLS) share price Source: Bloomberg

Telstra Corp Ltd, the A$11 billion telecommunications giant, has been a strong performer this year, outperforming the ASX 200 benchmark and rising some 44% YTD.

Indeed, as Telstra attempts to implement its aggressive T22 strategy, all eyes will be on the telco’s ability to make good on its promises when it delivers its full-year results this Thursday, August 15.

With this considered, here are 4 important things that investors may want to look out for when Telstra releases its FY19 results.

The $3 billion dollar question

Likely one of the driving forces behind Telstra’s bullish share price run-up of late has been the company’s exciting T22 strategy.

Backed by a A$3 billion investment program, the core aim of the T22 strategy is to simplify the company’s product offerings, reduce costs, and to ‘establish a standalone business unit to drive performance.’

In the first-half, Telstra reported that good progress has already been made on this strategic vision, including reducing management complexity and strongly positioning the company to establish itself as a market leader in terms of network performance during FY19.

Additionally, in the medium-term, Telstra Corp Ltd expects its T22 vision will create EBITDA benefits of around A$500 million per annum, from a ‘$3bn strategic investment realised by FY21.’

Ultimately, how Telstra’s T22 progress has continued across the full-year will almost certainly be both a key focus for investors and a potential catalyst for further share price gains when the telco giant releases its FY19 results.

Telstra share price: financial stability

Though Telstra’s T22 strategy looks to be tracking well and its share price has appreciated significantly in the last year, the telco’s revenue, earnings and dividend have all declined.

Here, Telstra reported that total income had declined 4.1% in the first half of 2019, coming in at A$13.8 billion.

To compound this issue, operating expenses climbed to A$9.5 billion for the half, while net profits after tax (NPAT) were crushed, falling 27.4% – hitting A$1.2 billion.

Though these results may appear underwhelming, they were mostly expected by the market, with Telstra's CEO and Managing Director Andrew Penn pointing out that, Telstra has:

‘Reconfirmed FY19 guidance consistent with its September 2018 announcement. In FY19 Telstra expects total income of $26.2 - $28.1 billion and EBITDA (excluding restructuring costs) of $8.7 to 9.4 billion.’

As is the general rule: investors will be keen to see the telco giant meet these FY19 guidance figures when Telstra (ASX: TLS) releases its full-year results in under three days.

If Telstra were to undershoot these guidance figures however, we could potentially see its share price come under pressure, given that the company has already risen so significantly in 2019.

The state of the dividend

Though Telstra Corp Ltd (ASX: TLS) still maintains a respectable dividend yield of 3.14% – this is a figure that has contracted meaningfully in the last year.

In 1H19, Telstra reported an interim dividend of just 8 cents per share – down 27% from the year prior.

A lower dividend is understandable as Telstra pursues its aggressive T22 strategy; with the company nonetheless continuing to maintain a payout ratio of between 70% and 90%.

Even still, investors will likely want to see a potential uptick in Telstra’s dividend in the short and/or medium term, as the telco progresses with its ambitious strategy and hopefully strengthens its financial position.

Will cost cutting remain on track?

Finally, investors will likely be interested to see how Telstra’s cost cutting program is tracking – as the telco aims at becoming a simpler and ideally more profitable operation in the medium-term.

On this front and as CEO and Managing Director Andrew Penn noted in the first half:

‘Against the stated target of removing 8,000 full-time roles by FY22, 3,200 people have now left the business.’

With Mr Penn adding that:

‘The cost reductions of this workforce change are expected to flow into 2H19 and FY20.’

Telstra Corp Ltd (ASX: TLS) will report its 2019 financial results to the market in under three days, on Thursday August 15.


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