Not since March 2005 have shares in Telstra Corporation Ltd (ASX: TLS) been as high as they are today. Around midday, shares traded at $5.38.
Over the past 10 years, we begun to use technology in a way which has changed our lives forever. With faster mobile networks and Wi-Fi hot spots popping up all over the place, there have been few companies to have taken advantage of the disruptive change better than Telstra.
But only recently has Telstra been able to transfer its domination in the telecommunications market into meaningful share price appreciation. Shares have risen 72% in the past five years (not including dividends) versus a return of 36% from the S&P/ASX 200 (ASX: XJO) (^AXJO).
So what's changed to enable the telco behemoth to reach such highs? And, more importantly, can the shares keep climbing?
These are legitimate questions facing both investors and current Telstra shareholders and ones which must be answered before we put our hard-earned cash behind it.
In the past decade, Telstra's had to deal with a large debt pile and businesses/services which cannibalised the lucrative products it supplied to Australians for many years. Its copper cable network stretching throughout Australia and the Sensis directories business were once strong and growing services.
However the introduction of smart phones and both wireless and fibre networks, has reduced demand for Telstra's legacy businesses and infrastructure and has also allowed for competition. For years, these changes shadowed the company's share price and its shareholders.
More recently however the telco has responded to trends in the market and has sought to become more agile and cash flow positive. Although, for the large part, the wave of subscriber growth in mobile and fixed internet markets is now behind it, Telstra has taken strides towards reinvigorating its product offering not only in Australia but overseas, particularly Asia.
Aside from its overseas expansion, cloud computing, unified communications and integrated business solutions are the next major step forward for Telstra in the local market. Although these are competitive growth areas, Telstra's scale, customer base and superior networks give it the edge on its rivals.
In the coming year analysts have tipped Telstra's cash pile to be as high as $7 billion, giving management balance sheet flexibility for further investment in Asia, increased dividends and debt repayments.
To buy, or not to buy
Although Telstra shares have appreciated significantly in the past five years, I believe long-term investors can be content with its future prospects. Only time will tell if CEO David Thodey's ambition to have a third of revenues derived from outside Australia will be successful, but for now it appears our biggest telco is in a strong position to capitalise on our ongoing technology dependence.
