Why Telstra’s share price could actually be a growth opportunity: fundie

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The Telstra Corporation Ltd. (ASX:TLS) The stock price has had a journey over the past few years. However, with the worst of NBN’s earnings behind it, will the telecommunications giant now start generating growth?

Telstra is one of the biggest blue chips on the ASX with a market capitalization of $46 billion according to the ASX.

Fund manager Perennial believes Telstra exhibits characteristics that “bode well for earnings and returns”.

Perennial took this view after reviewing the telecom operator’s FY22 result. Let’s take a quick look at this report.

Summary of results for fiscal year 22

Telstra said its total revenue fell 4.7% to $22 billion. Underlying earnings before interest, taxes, depreciation and amortization (EBITDA) rose 8.4% to $7.3 billion, while underlying earnings per share (EPS) jumped 48.5% to 14 .4 cents. As an indication, free cash flow increased by 5.9% to $4 billion.

The board also decided to increase the dividend from 8 cents per share to 8.5 cents per share. An annualized dividend per share of 17 cents would be 6.1% at the current Telstra share price.

Outgoing Telstra boss Andy Penn described the mobile result as “outstanding”. Mobile EBITDA increased by 21.2%, with mobile postpaid average revenue per user (ARPU) growth of 2.9% and mobile services revenue growth of 6.4%. The phone company said it added 155,000 net retail postpaid portable services. One million Internet of Things (IoT) services were also added, along with 218,000 wholesale services.

Telstra Health saw revenue rise 51% to $243 million after including acquisitions. Management said it was on track to become a $500 million revenue company by FY25.

Management said that for FY23, total revenue is expected to be between $23 billion and $25 billion. Underlying EBITDA is expected to be between $7.8 billion and $8 billion.

Why is Perennial positive on Telstra share price?

Perennial said the mobile business showed “good growth”. He went on to describe his optimistic view of the business:

With the rollout of NBN now complete, the company will no longer face earnings headwinds as broadband subscribers switch from its network to NBN at much lower margins. This should mark an inflection point in earnings, with the mobile division driving positive earnings growth for the group. The recent merger of TPG with Vodafone blocked an oligopolistic structure in the mobile market. As a result, we are now seeing more rational pricing, as well as other forms of cooperation such as network sharing agreements – which bode well for profits and returns.

Telstra recently announced that it would raise mobile prices for many customers in line with CPI inflation.

Telstra Share Price Overview

As of this writing, Telstra shares have fallen 1% in the past month.

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