Telstra (TLS) shares hit new ten year highs yesterday after its solid 2013-14 result.
Although some unnamed shareholders whinged to some media commentators about the ‘paucity’ of the share buyback (on top of the higher final dividend), most investors treated the result as a first instalment of more to come.
The shares hit a new multi year high of $5.58 yesterday – up 2.2%, before they eased to close at $5.56.
The $1 billion buyback and 15c a share final dividend will see $4.7 billion returned to shareholders in the next few months.
The mechanics of the buyback will see many big shareholders tendering as many shares as possible to grab the one-off payment, then going back out into the market to rebuild their holdings – that will be bullish for the shares over the next three months or so.
TLS 5Y – Telstra rewards the faithful
But looking at the caution Telstra CEO David Thodey showed in his outlook comments, Telstra is facing a a much tougher climate – as is the Commonwealth Bank and a host of other companies.
"In 2015 Telstra expects continued low single-digit income and EBITDA growth to offset the absence of CSL 2014 (that’s the Hong Kong mobile business sold off in 2013-14), operating revenue and EBITDA," he said.
"As a result, and after excluding the $561 million profit on the sale of CSL in 2014, Telstra’s income and EBITDA guidance for 2015 is broadly flat. Telstra expects 2015 free cashflow of between $4.6 billion and $5.1 billion and capital expenditure to be around 14 per cent of sales.
"This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, the cost of acquisitions and spectrum purchases.
“To help improve speed and capacity for our customers on the 4G network, in September we will invest $1.3 billion to secure the largest available holding of the 700MHz and 2500 MHz spectrum. Our commercial trials are proving this spectrum will greatly improve speed and capacity for customers from 1 January 2015. We also expect to again invest around $1 billion in the mobile network in FY15.
"During FY14 Telstra also announced it would build Australia’s largest national public Wi-Fi access network, which aims to offer Australians access to two million Wi-Fi hotspots across the nation and more than 13 million international hotspots within five years.
"By the end of 2014 Telstra expects to have switched on around 1,000 hotspots in metro, urban and holiday centres," Mr Thodey said yesterday.
Against that background, hopes of a repeat of the solid 2013-14 result with revenues up 6.1% and earnings before interest tax depreciation and amortisation up 9.5% to $11.1 billion look out of reach at the moment.
Telstra though has surprised by wringing more revenue and earnings out of its mobile business, despite many people claiming the business was mature and would not grow very much.
Telstra said that by "investing in the network has led to another year of customer growth, with 937,000 new domestic retail mobile customer services and 183,000 new fixed retail data services added".
But that growth in mobiles was slower than a year ago and average revenue per user is also falling. Cash payments from the NBN are still helping the company’s cash flows.
For those shareholders who have stuck with the company over the past decade, the past year or so has seen that patience rewarded, culminating in yesterday’s final dividend boost and the buyback.
It must be remembered that many of those fund managers and analysts now cheering the stock, were bagging it three or four years ago.
TLS Results Video
