Is it time to buy Telstra?

Telstra’s ‘three-pillar’ strategy should be welcomed by long term investors

Speaking at the company’s Investor Day in Sydney, Telstra (ASX: TLS) CEO David Thodey announced “a refined long term strategy” that will prove to shareholders the company can continue building value.

His words come as Telstra’s share price begins to climb back above $5, a point which has been met by resistance in recent months. So does Telstra still represent “value” for potential investors, or is it well-priced like other stocks in S&P/ASX20 (ASX: XTL)?

When we talk about value or cheapness, we are comparing it against other options available to us, not merely making a decision based upon one set of information. For example our money has to be put somewhere, whether it be under our mattress, in a bank or invested in the stock market. Where we put (or should put) our money depends what we perceive to be the cheapest from the options available.

Even after a strong rally in the past 2 years, Telstra’s value will be discovered in the future, not the past. This is what makes it such a good investment prospect.

Compared to other blue chip stocks like the Commonwealth Bank (ASX: CBA), Telstra stock trades on similar multiples, yields better but has a number of exciting growth opportunities both domestically and abroad. Telstra’s growing presence overseas (particularly in Asia) and its renewed focus on customer service and connectivity here in Australia should provide it with continued income growth in the future.

Telstra’s new strategy focuses on:

  1. Improving customer advocacy
  2. Driving value from the core; and
  3. Building new growth businesses

It’s nothing new to investors who know Telstra will use its superior market position to retain dominance and expand overseas but, as in the words of Mr Thodey, it does make the strategy “simpler and more impactful.” So far, the strategy has been paying off.

Customer advocacy (the first priority) is paramount to Telstra. Their large customer base is what gives them possibilities going forward. It allows them to continue offering more services to existing customers by way of bundling packages but it is also a great way to improve market share.

In the September quarter the company continued to grow strongly. It added an additional 243,000 mobile customers, 41,000 fixed broadband customers and 51,000 fixed broadband bundles. Telstra attribute this growth to the second company priority of “driving value from the core.”

Telstra’s growth is what’s important and the next 10 years couldn’t be more exciting for both its shareholders and management. More and more services are now becoming interconnected, through networks including the internet. Businesses now want global reach, wireless communications, more data and better coverage. Telstra’s Network Applications and Services business and Asia are huge markets going forward. Its Digital Media, Global Applications and platforms and eHealth are also exciting prospects for shareholders.

Foolish Takeaway

Yesterday’s investor presentation provided a keen insight into Telstra’s future and I think new and existing shareholders can find solace knowing that Telstra is well positioned for future growth. The company aptly used the following quote from Chris Zook of Bain and Company to describe the Telstra’s future prospects. “Companies have a four to six times better chance of success if they seek a solution for tomorrow’s growth based on their ‘hidden assets’ in the core”.

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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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