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Banks to lose from Telstra job cuts

According to a letter obtained by Fairfax Media, some of the 170 job cuts coming from Telstra’s (ASX: TLS) announcement on Tuesday won’t be from the back office.

It is believed that many of the jobs being cut will also include highly trained experts who oversee the networks of some of Telstra’s biggest and most important clients. The job cuts in October are believed to include staff assigned to the complex networks of the NAB (ASX: NAB), Qantas (ASX: QAN) and Westpac (ASX: WBC).

Some analysts believe the job losses are the result of poor growth opportunities and pressures from increasing costs. BBY analyst Mark McDonnell said that it’s the main reason staff have been cut from Telstra over the past few years. “I’m afraid that is very much the way the business needs to be run these days, with very little evidence of growth in revenues and a lot of pressure on costs”.

Telstra’s share price has rallied by some 75% since its low at the start of 2011, which was around the time it signed its $11 billion agreement with the NBNCo. This reinvigorated the share price and investors once again fell in love with its dividend and growth potential.

Investors and shareholders are still expecting the company’s shares to increase in value, which is indicated by its current P/E ratio of 16. With the company on track for a healthy full year report due out early next month, perhaps they’re right.

Foolish takeaway

When a company as big as Telstra looks for growth opportunities, its need to do one of two things. Seek growth in revenue through either the release of new products, pursuit of acquisitions or venture overseas. The other way is for companies to cut costs, we’ve seen our banks and biggest insurers do it in the past few years and it usually presents itself as job cuts. However, Telstra’s share price is a core income stock and should be treated as such. Growth opportunities will come in the form of smaller, lesser-known businesses.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

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