Telstra has a moment of truth this Wednesday with its 2018 investor day.
The shares had their best week in a month last week, jumping 6.1% to end on $2.94 on the expectation of significant cost cuts to be announced.
But they are down 19% year to date and nearly 33% in the past year.
Brokers seem to be more optimistic on the telco, saying that they are hoping for positive news on Wednesday with announcements of cost savings and new product bundling initiatives.
One of those cost savings is expected to be another cut to dividend from the annual 22 cents to perhaps 15 cents a share for 2018-19.
Brokers Ord Minnett last week upgraded Telstra ahead of its investor day on Wednesday, forecasting that management could announce further cost savings of up to $1 billion and product bundling initiatives.
In addition to this, the broker has suggested that Telstra could even go so far as to announce plans to launch a structural separation of the company.
Others are not so positive about that.
All are expecting some definitive guidance on earnings and revenue for the year to this June and for 2018-19 and sme guidance on the likely size of the dividend.
For CEO Andy Penn is is probably his last attemt to get Telstra on the front foot. A series of technical problems in the past three years has seen customer unhappiness withe the telco rise as the share price has weakened and the dividend cut.
If Telstra tells investors that dividends will again be cut in the 2019 financial year, there will be more pressure on him to present a story that when earnings fall after the NBN compensation payments end, there will be some path to improve earnings.
Brokers Morgan Stanley want the company to slash costs and jobs and its analysts claim the telco’s relative costs are higher than other telcos around the world
The analyst said Telstra had operating expenditure of 35% of its total sales in the 2017 financial year, compared with Optus’ 32% and 27% for the global average rate.
They claimed that if Telstra reduced its operational costs to sales ratio down to 32%, operating expenses could be $500 million to $1.5 billion lower and that earnings per share may be 5%-25% higher.
