Telstra upset the market with a less than expected 13% rise in net profit for the 2008 year and a less than expected forecast for the 2009 year.
Telstra shares finished 4% lower (or 18c) at $4.32 as investors reacted adversely to what they saw as a bit of underperformance, and what Telstra saw was a bit of solid performance.
From what the company said and the analysts reaction it’s another example (we have seen this before) of the company saying one thing and the analysts forecasting something else.
Telstra under promises and out performs, the analysts want more initially, and then readjust their forecastst when it becomes clear the company is doing a lot better than they thought! Its a silly game, but then its the way the management (mostly American) and the board of Telstra choose to operate.
I suppose for the next few months there will be a bit of sniping between the two camps, aided by some anti Telstra reports (and anti-Sol Trujillo reports) before there’s either another company update that repositions expectations, or analysts come around to the company’s way of thinking.
Since Sol Trujillo (who, was paid around $13.4 million during the year) became CEO around 3 years ago, there has been a constant tension between him, his management team, the Telstra board, analysts, the federal government and competitors.
And yet you’d have to say that for a Telco to boost earnings 13% in the face of intense competition and sliding demand for home phones and old fashioned services, Telstra did well.
Higher mobile phone and wireless data sales boosted revenue, offsetting the continuing slowdown in revenues from its old fixed line business.
Telstra said it earned a $3.7 billion net profit for the year to June 2008 – meeting analysts’ expectations – up from $3.27 billion earned in 2007.
Bloomberg said a consensus of analysts surveyed expected the company to earn $3.78 billion in net income.
But the shares fell, despite the company upgrading its 2009 outlook, with revenues expected to grow 3%-4% and earnings before interest and tax to growth 6%-7%.
It seems the market wanted to see an outlook profit growth estimate of around 8%, not 7%.
JP Morgan analysts had warned ahead of the result that while analysts’ forecasts for the 2009 financial year were bullish, Telstra faced slowing economic growth in Australia, which was likely to curb demand from corporate customers.
The company will pay a final dividend of 14c a share, bringing the annual dividend to 28c a share, fully franked. The dividend is unchanged on 2007.
"Telstra’s turnaround continues to gain momentum on all fronts, with our fiscal year guidance met or exceeded for the third consecutive year," chief executive Sol Trujillo said in a statement to the ASX.
"We have redefined our business by investing to create competitive advantages and this value differentiation strategy, underpinned by our customer-centric transformation, sets us apart."
"We are now three years through our five year end-to-end transformation and continue to hit or exceed the challenging targets we set ourselves back in November 2005.
"Subject to any significant regulatory outcomes, we remain on track to achieve our core long-term management objective of $6,000 to $7,000 million of free cash flow in fiscal 2010.
"We believe that the increase in free cash flow over two years from $3,855 million in 2008 will lead to significant shareholder value creation, whilst supporting the costs of our investment in a potential 5 year National Broadband Network (NBN) roll-out.
"It also gives our Board the flexibility to consider a range of options from increased returns to shareholders, to selective acquisitions and/or reducing the level of net debt.
"As we discussed at our first half results in February 2008, we have undertaken a detailed review of our revenue and cost drivers which are reflected in our guidance.
"Following the globally unprecedented success of the Next G™ and Next IP™ networks, Telstra has seen a paradigm shift in customer behaviour towards a real-time experience.
"Maintaining our competitive advantage in delivering a premium customer experience has required a commensurate increase in investment.
"We are raising our five year compound annual growth rate (CAGR) objectives for total revenue to 3% to 4% and EBITDA to 3.0% to 3.5%. We are also increasing our 2010 capex/sales ratio to around 14%.
“We are retaining our EBITDA margin target of 46% to 48% and reaffirm our free cash flow target of $6 billion to $7 billion in FY10. This outlook does not include any NBN considerations.
"For fiscal 2009 we expect total revenue growth of 3% to 4%, EBITDA growth of 6% to 7%, EBIT growth of 6% to 8% and accrued capital expenditure in the range of $4.3 billion to $4.6 billion.
“This guidance includes a further $50 million in FOXTEL1 distributions that we have already received."
That’s very bullish commentary from the CEO, who is known for his upbeat view of business. Unlike the more hedged, vague and wondering tone to the Commonwealth Bank’s outlook statement (see the accompanying story) Telstra sees good growth ahead.
There’s no acknowledgement of any potential economic slowdown and considerations like oil prices, petrol costs and interest rates, and their impact on customer behaviour is seemingly ignored.
Telstra said its mobile service revenues grew 12.3% for the year, while mobile data growth shot up 44.1%.
The company has 588,000 wireless broadband subscribers at June 30. The Next G mobile phone network has 6500 base stations across the country covering 99% of the na
