The Westpac Banking Corp (ASX: WBC) share price will be on watch on Thursday following the release of an after-hours announcement.

What did Westpac announce?

This afternoon Westpac announced a fully underwritten offer of ~31 million Pendal Group Ltd (ASX: PDL) shares to institutional investors. This represents approximately 9.5% of Pendal’s shares on issue.

According to the release, the banking giant has agreed to sell the shares for $5.98 per share. This represents a discount of 4% to Pendal’s last close price and a total consideration of just over $185 million.

This sale will complete the divestment of Westpac’s shareholding in Pendal, following earlier share sales in 2007, 2015, and 2017.

Westpac’s Acting Chief Financial Officer, Gary Thursby, explained that this divestment will allow the bank to focus on its core operations.

He said: “Pendal is a highly regarded, independent business, and given Westpac’s commitment to simplify its operations and focus on banking in Australia and New Zealand, now is the right time to complete our divestment.”

What impact will this have?

Once the offer completes, Westpac expects it to add approximately 2 basis points to its Common Equity Tier 1 capital ratio and result in a post-tax accounting gain of $32 million.

It will also have an impact on Pendal’s funds under management. Westpac has gradually been withdrawing its funds from Pendal over the last 12 months and will continue to do so over the next 12 months.

Another withdrawal is expected to occur in two tranches. The first tranche of approximately $1 billion will occur later this calendar year and a further tranche of up to $0.08 billion is expected in 2021.

But unfortunately for Pendal, it may not stop there. Westpac is currently undertaking a strategic review of its wealth businesses and has warned that following this review, “there may be a loss of some or all of the funds that Pendal manages on behalf of the Westpac Group.”

This would be a big blow for the fund manager, given that it currently manages approximately $14 billion for Westpac.

More reading

• Is the Telstra share price a buy?
• Why I think Telstra shares are a strong buy
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• ASX 200 Weekly Wrap: ASX bears take control as market volatility returns
• Why I would buy Telstra and this ASX dividend share today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Is the Telstra Corporation Ltd (ASX: TLS) share price a buy?

Telstra shares are still down 14% from the level it was at on 21 February 2020. But it hasn’t actually recovered much from the date when the S&P/ASX 200 Index (ASX: XJO) hit the COVID-19 low. Since 23 March 2020, the Telstra share price is only up 4.2%.

Perhaps that underperformance now means that Telstra is comparatively good value?

Maybe Telstra’s regular earnings aren’t given enough credit. We all need to pay our telecommunications bill to stay connected to the internet. The last few months has shown how important the internet is for many of us to work at home, be entertained or connect with family and friends.

However, Telstra’s revenue and earnings doesn’t increase by 10% if we use 10% more data in a month. These days consumers get a very generous amount of data so you’d have to watch a lot of online movies in ultra-high definition to use all of your allocated data.

Telstra’s share price has suffered in recent years as Australia shifted to the NBN. It was much easier for Telstra to make good profit when it owned all of the cable infrastructure. Now Telstra must compete on a level playing field with everyone else, with lower profit margins. The NBN has to recoup the money spent on it, which hurts the telco margins.

What is there to be positive about Telstra’s share price?

The FY20 half-year result was actually fairly positive. Telstra’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 6.6% to $3.9 billion. However, excluding the in-year NBN headwind, underlying EBITDA increased by approximately $90 million. That’s the first time this figure had grown since FY16. But then COVID-19 hit the world. 

Telstra is now expecting its free cashflow and underlying EBITDA to be at the bottom range of its guidance range. Free cashflow after operative lease payments was expected to be between $3.3 billion to $3.8 billion.

Considering how low interest rates are now, I think Telstra’s cashflow should be valued higher than before. Therefore the Telstra share price should be higher too, in theory. The same could be said about the dividend. The Telstra dividend should be more valuable than it was before interest rates were reduced.

I don’t think Telstra will want to cut the dividend any lower than the current 8 cents per share it’s paying every six months. I don’t think the annual fully franked dividend will go lower than 16 cents per share in the foreseeable future. This equates to a grossed-up dividend yield of 7%. I think that’s solid in today’s environment.

The best reason to be positive about Telstra is the coming of 5G. The world has changed a lot since 4G was released. There will probably be new services that we can’t even think of yet. Automated cars will need a high-quality connection for what they’ll do. The ‘Internet of Things’ change is going to need a good connection to enable our devices to connect where they need to connect. 

Is Telstra a buy today?

Telstra is currently trading at 21x FY22’s estimated earnings. I fear that 5G could turn into a race to the bottom for telcos again like how 4G has done. There’s lots of low-price competition for Telstra like Aldi Mobile, Boost Mobile and Amaysim Australia Ltd (ASX: AYS).

As investors we should want to invest in businesses that can grow over the long-term with good economic moats.

I’m not sure what Telstra’s future looks like because the economics of 5G look unclear. It was companies like Facebook, Alphabet and Netflix that managed to capture a lot of the value creation by the 2010s technology changes. Will telcos be able to change that with 5G? If you think so, then perhaps Telstra is cheap today. But I’m not convinced it is a good buy.

More reading

• Westpac share price on watch after dumping its Pendal stake
• Why I think Telstra shares are a strong buy
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• ASX 200 Weekly Wrap: ASX bears take control as market volatility returns
• Why I would buy Telstra and this ASX dividend share today

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is the Telstra share price a buy? appeared first on Motley Fool Australia.

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