As Australia’s number one telecommunications company Telstra Corporation Ltd (ASX: TLS) is in a league of its own. With experienced management at the helm, this doesn’t appear likely to change anytime soon.
In addition to very experienced management, Telstra has a number of defining characteristics which separate it from the rest of the S&P/ASX 200’s (ASX: XJO) (^AXJO) top blue-chip companies. Here are three reasons why Telstra could very well be Australia’s best stock.
1. Return on Equity
Telstra’s return on equity, or ROE, is a whopping 30.2%. For a company with a market capitalisation of $66 billion, a return on equity above 25% can be considered very good. By comparison, BHP Billiton Limited (ASX: BHP) and National Australia Bank Ltd. (ASX: NAB) have a return on equity of 16.7% and 14.6%, respectively. Of the top 20 biggest companies listed on the ASX, CSL Limited (ASX: CSL) is the only company with a higher ROE than Telstra, currently 40.4%.
One benefit Telstra shareholders inherited from its former government self is ownership of a huge amount of infrastructure which rival companies such as iiNET Limited (ASX: IIN) could only dream about. Over the years this has enabled Telstra to charge meaningful amounts of money to its customers for services which cost very little.
From home phone lines running on copper cable to an extensive cellular network, Telstra has maintained its legacy of high margin businesses. Currently home phones boast an EBITDA margin of 60% while mobiles operate on margins around 40%.
3. Market Share
Having superior networks and the ability to offer cheaper prices than its competitors has helped Telstra command a huge market share across a number of different products. Its fixed line data has 2.8 million subscribers, its fixed line voice has 6.4 million connections and, best of all, its total number of domestic mobile subscribers is nearly 16 million. By comparison Optus – owned by Singapore Telecommunications Group (ASX: SGT) – has around 9.43 million mobile subscribers.
An even better stock idea
With high margins, a big (growing) market and excellent return on equity coupled with a fantastic dividend yield, Telstra is one of Australia’s best stocks to invest in.