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Telstra shares: where to next following full-year results?

As Telstra gears up for the future, the $44 billion telco continues to make a number of smart business decisions in the present.

Telstra Corp Ltd. followed up a set of strong FY19 results with news of a deal that is expected to net the telco A$700 million.

Even with such positive news, Telstra’s share price has declined a little more than 3% since the release of its 2019 full-year results.

Telstra share price: specifics of the sale

Last Friday Telstra Corp Ltd. announced the creation of an unlisted property trust that will facilitate the partial sale of 37 of the company’s blue-chip exchange properties.

For A$700 million, the Charter-Hall Group will acquire a 49% stake in this newly-minted trust, while Telstra will have a controlling 51% stake.

The deal will see the property trust valued at a sizeable A$1.43 billion.

Telstra's visionary CEO, Andrew Penn, spoke of how this deal aligned with the telco’s overarching strategies last Friday.

Here, Mr Penn said:

'When we announced our T22 strategy in June 2018 it included the goal of monetising up to $2 billion of assets to strengthen our balance sheet.'

The ever-innovative Mr Penn, continued:

'Since then we have been working to unlock the true value of some of our assets and today's agreement, when completed, will take us to around the $1 billion mark.'

Besides this, as part of the deal:

‘Telstra will sign long-term triple-net lease arrangements with the property trust, providing it with a stable flow of payments.’

Indeed, in a world where the hunt for yield becomes ever-more difficult, this strategic partial sale looks to be an excellent move from Telstra’s management.

The sale is set to finalised by the end of August.

Implications of the deal

Ultimately, it’s likely that investors will be pleased to see Telstra Corp Ltd. making good progress on monetising assets and strengthening its balance sheet.

Telstra’s cornerstone T22 strategy – guided by Andrew Penn – aims to simplify the telco, reduce costs and to position the company strongly in a post-NBN world.

Though the company is taking steps to radically cut costs – slashing over 4,000 jobs in 2019, for example – the company’s operating expenses continue to rise.

Operating expenses rose from A$18.0 billion in 2018 to A$18.5 billion in 2019.

In saying this and as we previously reported, Telstra is set to realise significant earnings benefits from its T22 strategy by FY21.

Growth opportunities

In broader terms, Telstra Corp Ltd. is committed to building the telco of the future.

To achieve this, the company is aggressively expanding into a number of cutting-edge growth areas, including: 5G, the internet of things, health, infrastructure and global connectivity.

While Telstra has already led the way in Australia when it comes to the rollout of ‘super-fast’ 5G – how it will fare in these other growth areas seems somewhat less certain – though promising nonetheless.

The analyst take at a glance

According to the Wall Street Journal, the current analyst consensus for Telstra (ASX: TLS) is a hold.

In the wake of FY19 results, Macquarie Wealth Management for example, hit the stock with a neutral rating and a price target of A$3.80.

Macquarie noted that while the telco finished the year strongly, challenges still remain in 2020.

Morgans by comparison has a much more bullish outlook on Telstra: with an add rating and a price target of A$4.49 on the telco.

Such a price target would imply a potential upward share price movement of 19%.

Regardless of what analysts are thinking, when the ASX opened today, Telstra’s share price continued to struggle – dropping some 0.13%.

To read our previous coverage of Telstra's 2019 full-year earnings click here.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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