Why is the Telstra share price running higher today?

Posted: 16 September 2021 1:08 pm
News
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Shares in the telecoms operator have jumped nearly 40% over the last 12 months.

Shares in Australia’s biggest telecoms operator Telstra (ASX: TLS) are among the most traded stocks on the ASX on Thursday, jumping 2.5% to a new 52-week high of $4.03 in early trading.

What is lifting the Telstra stock price?

Investors seem gung-ho about Telstra after the company on Thursday released an investor day update where it outlined its eagerly anticipated future strategy.

The new strategy, dubbed T25, lays out the telecoms giant’s plans for the next 4 years and follows up on its fairly successful T22 strategy.

Under the new plan, Telstra will target annual growth rates in the "high-teens" for underlying earnings per share until FY25. It will also cut a further $500 million in fixed costs between FY2023 and FY2025.

The company has also pledged to extend its 5G coverage to most of Australia’s population, and will add 100,000 square kilometres of new 4G and 5G regional coverage. It has also promised improved services for customers, including more personalised telco, energy and tech services for individual customers using predictive analysis.

“T22 has been one of the largest, fastest and most ambitious transformations of a telco globally and today we are a vastly different company,” Telstra CEO Andrew Penn said in a virtual presentation.

“If T22 was a strategy of necessity, T25 is a strategy for growth,” he added.

Focus on returns

While T25 is important from the perspective of the company’s medium term outlook, investors will be pleased with the focus on financial performance and returns to shareholders.

The cost cuts under the new plan, for instance, are on top of the $2.7 billion reductions already being targeted under its current T22 strategy. This, along with the focus on earnings growth, is expected to support its dividend payments and allow for a long-awaited dividend increase in the next few years.

“Telstra’s updated capital management framework, effective from today, includes principles to maximise fully-franked dividends and seek to grow them over time, to invest for growth and to return excess cash to shareholders,” the company said. It also reiterated a minimum 16 cents per share fully franked dividend through to FY25.

Last month, Telstra reported a slight increase in full-year net profit even as earnings before interest, taxation, depreciation and amortisation (EBITDA) slid 14.2%. The telecoms major also announced a $1.35 billion on-market share buyback following the recent sale of 49% stake in its towers business for $2.8 billion.

Meanwhile, analysts at Goldman Sachs recently bumped up their 12-month price target on the Telstra stock to $4.40 a share, indicating further upside. Telstra shares have already been among the best performers on the ASX, rising nearly 40% over the last 12 months.

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