Telstra (TLS) shares lost more than 6% yesterday in the wake of the telco’s surprise slide in interim profit.
The fall carved around $4 billion from Telstra’s market value, a big loss for the company and shareholders.
Helping drive the gloom were not only the weak interim earnings and customer figures, but the small downgrade in full year earnings guidance.
Telstra reconfirmed its forecast for 2016-17 of mid to high-single digit net income growth and low to mid-single digit operating earnings growth, but warned it was now likely headed for the bottom end of the range, which is effectively a small cut in the guidance.
The fall came despite an unchanged dividend of 15.5 cents a share (which will deliver $1.8 billion to shareholders).
Despite all this the shares fell 6.6% to $4.85 in what was the stock’s biggest share price fall in six years.
Investors were more shocked at Telstra’s reporting an unexpected 14.4% drop in first-half profit, thanks to falling revenues for its fixed-line and mobile telephone businesses.
Revenue dropped 6.4% to $12.8 billion, driven by the loss of earnings from its disposal of a Chinese car website and stiffening competition at home.
Earnings before tax etc and excluding restructuring costs and regulatory impacts rose 2.4% to $5.4 billion, thanks to 90,000 new retail fixed broadband customers and the take-up of new retail mobile services.
But that’s not the figure investors focus on. The company said underlying profit for the six months to December 31 was $1.79 billion, lower than company guidance for mid-to-high single-digit profit growth through the year. It also missed market forecasts for an underlying profit of $2.04 billion.
Mobile revenue fell 8.7% to $5 billion for the December half year and revenue from Telstra’s fixed-line business dipped 4.7% to $3.3 billion.
Chief Executive Officer Andrew Penn said the results showed Telstra had "performed well" in face of increased competition in the market.
"Data volumes have increased and intense competition on pricing across fixed, bundles, mobile, data and IP has had an impact.
"Those are in parallel with the acceleration of the rollout of (the National Broadband Network) which, over the longer term, will have a negative impact on EBITDA (earnings before interest, taxes, depreciation and amortisation) of Aus$2-3 billion."
The company said a one-off regulatory charge stemming from government price-setting in the wholesale messaging market had weighed in particular on the mobile business, which reported an 8.7% fall in revenue.
Telstra is also facing that hit to earnings before interest, tax, depreciation and amortisation of between $2 billion and $3 billion from the loss of its wholesale business when the government-owned NBN broadband network replaces Telstra’s copper lines completely by around 2020.
Chief financial officer Warwick Bray told AAP that Telstra is talking to shareholders about its capital allocation review, which will take into account the long term outlook for the business, the balance sheet, the impact of national broaband network.
“The biggest single thing that we’ve heard from our shareholders is the importance of keeping a strong balance sheet," Mr Bray told AAP yesterday.
