Today's results could see the Telstra Corporation Ltd (ASX: TLS) share price sink further, after the company reported a weak first half. While a stronger second half is expected to see the company hit its guidance, investors might not be so optimistic. Here's what you need to know:
- Total income fell 3.5% to $13.7 billion
- Net Profit After Tax fell 14% to $1.79 billion
- Dividends maintained at 15.5 cents per share
- Successful buyback of 2.31% of total shares on issue
- Stronger second half expected to see the company hit full-year guidance
- Guidance for mid-to-high single-digit income growth
- Low-to-mid single-digit Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) growth
- Free cash flow of $3.5 billion to $4 billion ($1.6 billion this half)
So What?
Regulatory changes to the Mobile Terminating Access Service (MTAS) and Final Access Determinations (FAD), which govern some of Telstra's fees, hurt the company's income comparative to prior periods.
Aside from this, it was a rough year all round for Telstra with underlying retail income declining 1.8%, Telstra Business income declining 6%, and Global Enterprise and Services income fell 6% also.
Network and Application Services (NAS) and Wholesale were a bright spot, growing 11.5% and 1.8% respectively.
Increasing revenue from the National Broadband Network (NBN) rollout alleviated some of the burden, but that will also act to exaggerate the hole left behind when NBN payments cease.
Now What?
Telstra's in a tough position at the moment, with competition mounting in the internet and mobile spaces, a high dividend that investors have come to see as bulletproof, and the completion of the NBN is expected to leave a $2 billion hole in EBITDA. On top of that, the company is ramping up its capital expenditure to improve the quality of its network after a number of recent outages.
While Telstra has plenty of free cash flow to cover its dividend payments, with more capital expenditure and management's intention to increase the company's debt levels further, it's tough to see the dividend growing much further. Factor in the future impact to earnings when the NBN rollout finishes, and I'd prefer to watch Telstra from the sideline for the time being.
