The Telstra Corporation Ltd (ASX: TLS) share price will be on watch this morning after half-year earnings fell within guidance but the company announced a decrease in its interim dividend.
What was in the earnings release?
Total income on a reported basis was down 4.1% to $13.8 billion in 1H19, while earnings before interest, tax, depreciation and amortisation (EBITDA) on a reported basis was down 16.4% to $4.3 billion. Unsurprisingly, the group's net profit after tax (NPAT) fell 27.4% to $1.2 billion as the impact of the NBN continues to hammer earnings.
Management noted that once the NBN impact is stripped out, the underlying Telstra operations is running quite well. This includes an additional 239,000 additional retail postpaid mobile services (including 115,000 services on Belong) whilst Telstra Wholesale added 125,000 mobile services that were a mix of prepaid and postpaid.
The company's net tangible assets per security increased to $0.563 from 0.508 in 1H18, despite divesting several subsidiaries throughout the period including Ooyala (USA), Pacnet Services (Bermuda) and Telstra Colorado (Australia).
Free cash flow (FCF) fell 63.5% in the period to $627 million as lower profit offset any of the productivity improvements made by the company in the half.
Telstra's famous dividend policy remains under pressure following the result, with management paying a fully-franked interim dividend of 8 cents per share (cps) in 1H19. This will comprise a 3 cps special dividend and 5 cps ordinary dividend, consistent with Telstra's 70-90% payout ratio on underlying earnings. This represents a cut to the company's 1H18 interim dividend, which comprised of a 3.5 cps special dividend and 7.5 cps ordinary dividend.
The company is forecasting FY19 total income of $26.2 billion -$28.1 billion, whilst EBITDA (excluding restructuring costs) is expected to be $8.7 billion -$9.4 billion for the year. Management expects total capex of $3.9 billion -$4.4 billion, while no guidance was given on NPAT expectations for FY19.
Where to next for Telstra?
The struggles seem to never end for Telstra as it battles increasing competition on all fronts. With TPG Telecom Ltd (ASX: TPM) shelving its 5G network rollout plans, I think we could see its merger with Vodafone, through 50% owner Hutchison Telecommunications (Aus) Ltd (ASX: HTA), get the tick of approval from the ACCC after earlier concerns.
The Telstra share price has fallen 50% since February 2015 and shows no signs of turning the ship around. I'd be looking at TPG if the merger gets approved as it would become a nimble, low-cost player with a big network in Australia.
