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How’s the growth outlook for Telstra Corporation Ltd?

Source: Telstra presentation

Telstra Corporation Ltd (ASX: TLS) has underperformed the ASX in 2016. Its shares have fallen by 2% while the wider index has risen by 4%. However, its growth potential is significant for these three reasons.

Customer loyalty

Telstra has invested in an improved customer experience. This should boost sales and also provide a higher degree of customer loyalty, which may result in higher margins and greater repeat business in the long run.

For example, Telstra has streamlined its processes and systems to make customer interaction easier and faster. It has also improved its digital capabilities. Telstra’s 24×7 app has 2.9 million active users and provides customers with access to a number of services including a store locator and topping up broadband allowances.

Additionally, Telstra’s product range has been enhanced. It has introduced new experiences on its network such as access to media content, unlimited data on the Telstra Air Wi-Fi network until March 2017, as well as an AFL/NRL content passes for eligible customers.

Efficiencies

Allied to sales growth is Telstra’s productivity drive, which could positively catalyse margins and profitability. For instance, Telstra has introduced multiple customer management initiatives to improve efficiencies when customers move to the nbn network. It has cut the average cost to connect each customer by 40% to date and an expanded use of technology could cause a further fall.

Telstra has also invested in improved tools and processes for customer facing staff. Its Customer Adviser tool reduces the amount of time to resolve queries and its My Account Mirror function helps customers to utilise self-service features to a greater degree. This reduces staff expenses and contributed to a 0.6% reduction in underlying core fixed costs in financial year 2016. Additional use of similar technologies is set to cause a further fall in costs and improve profitability.

New services

Telstra has invested $235 million since 2013 in 18 health-related companies. They offer technology-related solutions which will improve the efficiency of the healthcare market. This not only diversifies Telstra’s income stream but also provides a new avenue for long term growth.

A key part of this is likely to come from Telstra’s ReadyCare service. This is a 24/7 telemedicine service which connects a patient to a GP by phone or video. The National Telehealth Connection Service run by Telstra Health has already saved the Northern Territory government around $1.1 million in travel costs, which shows that it adds value to customers and has wider growth potential.

Clearly, Telstra Health is small in comparison to healthcare companies such as Ramsay Healthcare Limited (ASX: RHC), but it offers growth which is less positively correlated to the wider economy than is the case for the remainder of Telstra’s operations. Therefore, when combined with its increased customer focus and efficiency programme, Telstra has a reasonable growth outlook.

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