The Telstra Corporation Ltd (ASX: TLS) share price has been out of form over the last 30 days.
Since this time last month the telco giant's shares have fallen 10.5% from $3.83 down to $3.43.
Why is the Telstra share price down 10% in one month?
As well as being dragged lower by the market following the coronavirus outbreak, investors appear to have been selling its shares due to the Federal Court's decision to allow TPG Telecom Ltd (ASX: TPM) and Vodafone Australia to push ahead with their merger plans.
The successful merger of these two complementary businesses will create a third big player in the Australian telco market behind market leaders Telstra and Optus.
Analysts at Morgans, who remain bullish on Telstra, have suggested the merger could be a negative in the long term due to the increased competition from a well-funded player.
Unfortunately, this news appears to have overshadowed a positive half year update from Telstra last month.
How did Telstra perform in the first half of FY 2020?
I was impressed with Telstra's performance in the first half and particularly the success of its T22 strategy.
During the half, the company reduced its underlying fixed costs by $422 million or 12.1%. This latest reduction has taken its total underlying fixed cost reductions to around $1.6 billion since FY 2016.
And while this couldn't stop Telstra from reporting a 6.6% decline in underlying EBITDA to $3,875 million, this figure includes the NBN rollout headwind. If you exclude this, Telstra would have delivered a $90 million increase in EBITDA. This was the first time this figure has grown since FY 2016. But it may not be long until we see further growth, given how the NBN rollout is nearing completion.
Looking ahead, the company reconfirmed its guidance for FY 2020. It expects underlying EBITDA in the range of $7.4 billion to $7.9 billion and free cash flow after operating lease payments of $3.3 billion to $3.8 billion.
In light of the latter, Telstra's fully franked 16 cents per share full year dividend looks more than sustainable to me.
Should you invest?
Whilst there is still clearly a lot of work to do, I'm very happy with the progress the company is making and feel that a return to growth isn't too far away.
In the meantime, I'm confident its dividend is sustainable at the current level and no further cuts will be necessary. As a result, I would class its shares as a buy.
Incidentally, as mentioned above, Morgans remains bullish and has an add rating and $4.40 price target on the company's shares. This implies potential upside of 28% for its shares over the next 12 months excluding dividends.
