Telstra gets Defensive

$1.1 billion deal gives shareholders cause for celebration.

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Shareholders of Australia’s top Telco, Telstra Corporation (ASX: TLS), have today been given another 1.1 billion reasons to rejoice, after the company announced that it had signed a contract worth $1.1 billion with Defence for the provision of telecommunication services for the next six-and-a-half-years.

It has recently been speculated that Telstra’s shares may have run their race, after climbing from $2.55 in 2010 to a new five-year high of $4.84 yesterday. According to The Australian, major Telstra shareholder Anton Tagliaferro recently stated that he believed that at today’s prices, Telstra’s shares had reached their full value. This deal may have him – and many other investors – reconsidering that belief.

With an aim to “deliver technology that can become the backbone of Australian Defence for the next decade and beyond”, the agreement will allow for more efficient, effective and secure communications in what will be a major transformation of the Australian Defence’s telecommunications environment.

Telstra’s CEO, David Thodey, stated that “the agreement represents the largest customer undertaking in Telstra’s history”, supporting some 100,000 users both in Australia and abroad. Thodey also added the significance of the deal, as drawing upon Telstra’s ‘heritage’ of serving government customers on a large scale.

The agreement has forced Telstra to create 350 new jobs to assist in serving the contract, where the company will be looking to recruit leading Australian experts in IT, networks and security to ensure a positive outcome.

In trading yesterday, Telstra wasn’t the only telecommunications company to climb the market. As a defensive mechanism against plunging resource stocks, news on Chinese GDP and the tragic bombings that occurred in Boston earlier this week, investors flocked to high-yielding stocks and telecommunications companies. Shares in iiNet (ASX: IIN) soared 5% yesterday, whilst TPG Telecom (ASX: TPM) gained 4.45%.

Telstra’s project is currently expected to be completed by mid-2016.

Foolish takeaway

Many Australians have enjoyed the pleasure of owning shares in Telstra through their resurgence since late 2010, stacking on 90% in value plus a healthy dividend yield. As the telecommunications behemoth continues to attract new customers and large corporations, shareholders should be well rewarded with further share growth and increasingly attractive dividend payments.

Still wondering whether to buy, sell or hold your Telstra shares? Get a top analyst’s latest Telstra recommendation in our brand-new investment report. Click here now, your copy is FREE!

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