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

The Telstra Corporation Ltd (ASX: TLS) share price has gone through a journey over the last few years. However, with the worst of the NBN profit hits behind it, is the telco giant now going to start delivering growth?

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

The fund manager Perennial believes that Telstra is displaying characteristics that “bode well for earnings and returns”.

Perennial has taken this view after examining the telco’s FY22 result. Let’s have a quick look at that report.

FY22 earnings recap

Telstra reported that its total income declined by 4.7% to $22 billion. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 8.4% to $7.3 billion while underlying earnings per share (EPS) jumped 48.5% to 14.4 cents. On a guidance basis, the free cash flow increased 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 annualised 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 rose by 21.2%, with 2.9% postpaid handheld average revenue per user (ARPU) growth and 6.4% mobile services revenue growth. The telco said it added 155,000 net retail postpaid handheld services. There were also one million internet of things (IoT) services added, along with 218,000 wholesale services.

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

Management said that in FY23, total income is expected to be between $23 billion to $25 billion. Underlying EBITDA is predicted to come between $7.8 billion to $8 billion.

Why is Perennial positive on the Telstra share price?

Perennial said that the mobile business showed “good growth”. It went on to describe its optimistic view on the business:

With the NBN roll-out now completed, the company will no longer be facing earnings headwinds as broadband subscribers transition from its network to the NBN at much lower margins. This is likely to mark an inflection point in earnings, with the mobiles division driving positive group earnings growth. The recent merger of TPG with Vodafone has locked in an oligopoly structure in the mobiles market. As a result, we are now seeing more rational pricing, as well as other forms of cooperation such as network sharing agreements – all of which bode well for earnings and returns.

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

Telstra share price snapshot

At the time of writing, Telstra shares have dropped 1% in the past month.

The post Why the Telstra share price could actually be a growth opportunity: fundie appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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