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Telstra Corporation Ltd shares drop lower on market update

In morning trade the Telstra Corporation Ltd (ASX: TLS) share price has dropped lower after the telco giant released a market update.

At the time of writing Telstra’s shares are down almost 3.5% to $3.09.

What was in the update?

Based on its year to date results as of the end of April, Telstra has reaffirmed that it is on track to meet its FY 2018 guidance.

According to the release, Telstra is currently on course to hit the low-end of its earnings before interest, tax, depreciation, and amortisation guidance range of $10.1 billion to $10.6 billion.

A 3.6% decline in average revenue per user (ARPU) for postpaid mobiles may be the reason behind Telstra only hitting the low-end of its EBITDA guidance.

Unfortunately, this may not be the last of its ARPU declines in mobile. Within the update management warned that the challenging conditions being faced in mobile and its fixed businesses are expected to continue in FY 2019.

I suspect this statement is likely to be what is weighing heavily on its share price performance today.

But it wasn’t all bad. Pleasingly, free cashflow is expected at the top end or moderately above its guidance range of $4.2 billion to $4.7 billion.

In addition to this, management advised that it continues to focus on reducing costs and expects FY 2018 underlying fixed costs to be 7% lower year-on-year.

As a result, the telco giant has reaffirmed its full-year dividend will be 22 cents per share fully franked.

Should you invest?

I think that Telstra is very attractive at the current share price and prefer it to rivals TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC). However, it certainly isn’t as low risk as it was a decade ago. Because of this, I think it is a buy, but I wouldn’t necessarily recommend going overweight with its shares.

Whereas this dividend share is one that I would go overweight on right now.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. 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 Scott Phillips.

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