What to watch when Telstra releases it half year results

The Telstra Corporation Ltd (ASX:TLS) share price will be on watch next week when it releases it half year results. Here's what to expect…

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On February 13 telco giant Telstra Corporation Ltd (ASX: TLS) will release its highly anticipated half year results.

With the Telstra share price up 19% over the last 12 months, it is fair to say that expectations are reasonably high.

In order to prepare you for Telstra's result, I thought I would look to see what the market is expecting from the company next week.

What is the market expecting from Telstra?

According to a note out of Goldman Sachs, it expects Telstra to report a 2% decline in income to $13.5 billion and a 6% drop in EBITDA (ex-restructuring) to $4.63 billion.

The latter comprises of core EBITDA of ~$3.8 billion and NBN one-off earnings of ~$0.87 billion and compares to the consensus estimate of $4.36 billion.

On the bottom line the broker expects an 11% drop in net profit after tax to $1.33 billion. This is higher than the consensus estimate of $1.2 billion.

Despite the forecast drop in the company's profits, Goldman Sachs expects Telstra to retain its interim dividend of 8 cents per share fully franked.

What should you look out for?

Goldman expects Mobile EBITDA to fall 6% in the first half to $1,827 million. This compares to the consensus estimate for a decline to $1,857 million. This is despite an estimated 100,000+ postpaid net subscriber additions.

The broker will also be watching Telstra's free cash flows. It is expected to report a significant step down in capital expenditures in FY 2020. However, Goldman notes that there is some risk to its FCF guidance from the recent change in payable terms. These have been reduced from 62 day to 20 days.

A final thing to watch is its productivity. Telstra is targeting cost reductions of $630 million in FY 2020. Goldman has forecast a reduction in total costs of 0.8% in the first half. It expects an 11% decline in labour costs and a 1% reduction in other costs to offset a 6% lift in its cost of goods sold.

Overall, Goldman Sachs is positive on its first half prospects and has retained its conviction buy rating and $4.40 price target on its shares.

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. 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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