Telstra Corporation Ltd to reward shareholders after selling Autohome stake for $2.1 billion

Source: Telstra presentation

Telstra Corporation Ltd (ASX: TLS) has completed the sale of 47.4% of its stake in Chinese online business Autohome for US$1.6 billion – with shareholders the big winners.

The telco will retain a small 6.5% stake in Autohome – China’s equivalent of – after selling its stake to Ping An Insurance Group.

Telstra will book an accounting gain of $1.8 billion on the sale, with most of the proceeds from the sale used to fund a capital management program of at least $1.5 billion in the first half of the 2017 financial year (i.e. in the second-half of 2016).

As previously announced, most of the proceeds from this sale will be used to fund a capital management program of at least A$1.5 billion to commence in the first half of the 2017 financial year. We will provide more detail on the capital management program at our full year results in August,” said CEO Andy Penn.

That is likely to mean a share buyback program – similar to the one conducted in 2014. A special dividend or higher dividend is unlikely given the company’s lack of franking credits.

The current share price is around $5.38 – lower than when the previous buyback was conducted, so appears to be a sensible use of capital.

However, with $17.4 billion of debt on its books, some would prefer the telco to pay down its debt.

Confirmation of the capital management program also suggests that the telco is struggling to find worthwhile investments. The company recently backed out of a joint venture in the Philippines.

Foolish takeaway

While some market commentators have vilified Telstra for its lack of growth, when your company dominates its industry and you have a market cap of $66 billion, it can be difficult to make investments that can move the needle.

The sensible action to take then is to return funds to shareholders – or pay down debt.

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Motley Fool writer/analyst Mike King owns shares in Telstra Corporation. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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