Stock Spotlight: Telstra Group Limited (ASX:TLS)

This week's Stock Spotlight is ASX-listed Telstra Group Limited.

About Telstra Group Limited.

Telstra Group Limited engages in the provision of telecommunications and information services to businesses, government, and individuals in Australia and internationally. It operates through six segments: Telstra Consumer; Telstra Business; Telstra Enterprise Australia; Telstra International; Networks, IT and Products; and Telstra InfraCo. The company offers telecommunication and technology products and services to consumer and small and medium business customers using mobile and fixed network technologies, as well as operates call centers, retail stores, a dealership network, digital channels, distribution systems, and Telstra Plus customer loyalty program. It also provides network capacity and management, unified communications, cloud, security, industry solutions, integrated and monitoring services to government and large enterprise and business customers; wholesale services, including voice and data; and telecommunication products and services to other carriers, carriage service providers, and internet service providers, as well as builds and manages digital platforms. In addition, the company operates the fixed passive network infrastructure, including data centers, exchanges, poles, ducts, pits and pipes, and fiber network; provides wholesale customers with access to network infrastructure; offers long-term access to components of infrastructure under the infrastructure services agreement; and operates the passive and physical mobile tower. The company was formerly known as Telstra Corporation Limited and changed its name to Telstra Group Limited in November 2022. Telstra Group Limited was founded in 1901 and is based in Melbourne, Australia.

Source: Yahoo Finance

Key Stats

Source: Yahoo Finance, ASX. Data as of 01/10/24.

Growth Potential

• Solid FY25 guidance with expected y/y growth in underlying EBITDA.
• Attractive dividend yield.
• Strong market position in mobile which continues to see positive price growth – this is the largest contributor to revenue and earnings.
• Ongoing improvement in the balance sheet position (leverage) provides optionality (e.g. capital management initiatives).
• Attractive free cash flow profile – management expects FY25 FCF (before strategic investments) to be in the range of $3.0–3.4bn. This should be supportive of dividend policy and growth.
• Over the long-term, the introduction of 5G provides potential growth, however we continue to monitor the ROIC from the capex spend.
• Industry consolidation leading to improved pricing behavior by competitors.
  

Key Risks

• Potential cuts to dividends.
• Deterioration in the core mobile and fixed business.
• Management fails to deliver on cost-out targets.
• Any increase in churn, particularly in its Mobile segment - worse than expected decrease in average revenue per users (or any price war with competitors).
• Any network disruptions/outages.
• More competition in its Mobile segment. Merger of TPG Telecom and Vodafone Australia creates a better positioned (financially and resource wise) competitor
• Quicker than expected deterioration in margins for its Fixed segment.
• Risk of cost blowout in upgrading network and infrastructure to 5G.