Last week, over 110 companies presented to a select group of Macquarie Group’s (ASX: MQG) clients at the annual Macquarie Australia Equities Conference. Telstra (ASX: TLS) was one of those companies, with a presentation and speech delivered by Deputy Chief Financial Officer Mark Hall. A read-through of Hall’s address suggests Telstra is picking up the pace with a renewed attack on its competitors to win back the hearts of consumers and their wallets.
Initiatives included a long overdue change to the draconian 24-month lock-in contracts, new bundled plans and a $1.2 billion spend on upgrading 4G wireless technology. Hall also re-affirmed guidance for low single-digit growth and a continued 28-cent fully franked dividend.
Telstra’s revamped customer offering will of course raise the bar for major mobile competitors Singapore Telecom (ASX: SGT), owner of the Optus network, and Hutchison Telecom (Australia) (ASX: HTA) which holds 50% of the Vodafone Australia network. Smaller players in the retail Internet service provider (ISP) space, such as iiNet (ASX: IIN) and TPG Telecom (ASX: TPM), also stand to lose from a resurgent Telstra and its ability to retain and expand its customer base through its greater ability to offer bundled services.
The domestic telco sector has, by and large, been producing impressive results and this has flowed through to share price performance. As the chart below shows, the major mobile and ISP providers, with the exception of Hutchinson which has had technical issues with delivery on the Vodafone network, have easily outperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past year.
Source: Google Finance
Investors have certainly woken up to Telstra’s resilient earnings potential, defensive yield and dominant market potential. This has pushed the share price through the $5 mark and the price to earnings ratio up towards 18 times. On a multiple of 18, investors would presumably be expecting a double-digit growth rate in earnings, which is far above management’s guidance. If you don’t think Telstra can grow that quickly, then the shares are likely looking fully valued.
With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: “Is It Time to Sell Telstra?”
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