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Earnings season: What to expect from Telstra in FY 2020

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One of the most eagerly anticipated results this earnings season will come from Telstra Corporation Ltd (ASX: TLS).

Opinion is divided on how the telco giant is performing and ultimately what impact this will have on its dividend payment.

In light of this, I thought I would take a look to see what the market is expecting from the company on 13 August.

What does the market expect from the Telstra full year result?

According to a note out of Goldman Sachs, its analysts expect Telstra to report a 4% decline in income to $26.7 billion and an 8% decline in EBITDA to $9 million.

The latter includes core EBITDA of $7.45 billion, down 9% on the prior corresponding period. This compares to Telstra’s guidance for the bottom end of its $7.4 billion to $7.9 billion range.

And on the bottom line, Goldman is forecasting a 22% decline in net profit after tax to $2.4 billion.

Despite this decline, the broker believes Telstra’s free cash flow will be sufficient to maintain its final dividend of 8 cents per share.

What about FY 2021?

Telstra traditionally provides guidance for the year ahead with its full year result, so all eyes will be on that.

Goldman is forecasting FY 2021 underlying EBITDA to decline 4% to $7.14 billion, with NBN payments of $1.05 billion.

Once again, investors will be eager to see what Telstra’s dividend plans are for the financial year. Pleasingly, Goldman is confident that a 16 cents per share dividend will be paid.

It commented: “TLS believes it requires $7.5bn of EBITDA to support 16¢ DPS. Hence, we see the messaging around the ‘one-off’ Covid-19 impacts as important to determine how the company will assess FY21 earnings and the outlook into FY22. We continue to believe that TLS can comfortably fund 16¢.”

Should you invest?

I agree with Goldman Sachs on its dividend and believe 16 cents per share is sustainable for the foreseeable future. In light of this, I would be a buyer of its shares now.

This is something that Goldman is also recommending. It has retained its conviction buy rating and $4.10 price target on the company’s shares.

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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. 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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