Why is the Telstra share price dialling higher today?

Posted: 18 February 2022 12:46 pm
News
TLS-shares-18Nov_1800x1000_Finder

Shares in the telecoms operator after trading relatively flat over the last 6 months.

Shares in Australia's biggest telecoms operator Telstra (ASX: TLS) are among the most traded stocks on the ASX on Friday. At the time of writing, the shares were up 1.8% to $3.97, putting the stock within touching distance of its 52-week high of $4.31.

Shares in rival TPG (ASX: TPG) were unchanged at $5.80.

Why is the Telstra stock price on the rebound?

Telstra shares have likely rebounded as investors cheer the underlying growth narrative in its half-year results that were initially received with scepticism by the market.

The telco giant on Thursday reported a 34% slide in half-year net profit to $700 million caused by a slide in payments from the NBN, and a 14.8% decline in earnings before interest, taxation, depreciation and amortisation (EBITDA) to $3.5 billion. The weak numbers prompted a 4% decline in Telstra shares.

However, a detailed reading of Telstra's half-year announcement reveals significant positive momentum in its core business.

Earnings at its key mobile business rose 25% in the 6-month period to $1.9 billion, while the mobile EBITDA margin jumped to 41.8% from 33% previously.

Telstra added 84,000 customers to its cash cow postpaid segment, far more than rivals Optus and TPG-Vodafone. Its average revenue per user in the segment also rose during the last half-year, widening the gap with rival telecoms firms.

Growth focus

CEO Andrew Penn said the continued focus on mobile network leadership and building value has resulted in ARPU growth, mobile services revenue growth and mobile EBITDA growth.

"This was the second consecutive half of underlying growth. The results show we have stayed disciplined and focussed on delivering what we said we would. The benefits of T22 are flowing through for our customers and our shareholders," he said.

The T22 program has also helped Telstra deliver a massive $2.7 billion in costs, streamlining the business and allowing it to focus on growth opportunities.

The telecom giant is already pushing on with its new T25 strategy, under which it is targeting annual growth rates in the "high teens" for underlying earnings per share until FY25.

Simultaneously, it has also unveiled a spending push that includes investing $1.6 billion in 2 projects to boost its optical fibre network and build ground infrastructure for satellite Internet, teamed up with the Australian government to acquire the Pacific operations of telecoms firm Digicel, and pledged to boost regional coverage and extend its 5G coverage to most of Australia's population.

The strategy and the results were backed by analysts as well as ratings agencies, with Moody reaffirming Telstra's A2 credit rating.

"Fiscal 2021 looks to have been the turning point for Telstra's credit profile," the ratings firm said, adding that the latest half-year results signalled an improving credit outlook.

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