Telstra (ASX:TLS) share price on watch after major update

The Telstra Corporation Ltd (ASX:TLS) share price will be one to watch today after the release of a major announcement…

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The Telstra Corporation Ltd (ASX: TLS) share price will be in focus today after the release of a major announcement by the telco giant.

What did Telstra announce?

This morning Telstra announced an important milestone in its T22 strategy with the proposed restructuring of the company to create three separate legal entities.

Telstra’s CEO, Andrew Penn, believes the restructure would enable the company to take advantage of potential monetisation opportunities for its infrastructure assets which could create additional value for shareholders.

He commented: “The proposed restructure is one of the most significant in Telstra’s history and the largest corporate change since privatisation. It will unlock value in the company, improve the returns from the company’s assets and create further optionality for the future.”

“The challenges and disruptions of the last 6-12 months have reinforced the increasing value of infrastructure assets globally; the importance of the digital economy, not only to business but to the whole of Australia and its economic recovery; and the dependence of the digital economy on telecommunications as its platform,” Mr Penn added.

What are the changes?

The proposed legal structure within Telstra is expected to be completed by December 2021 and would be:

InfraCo Fixed – it would own and operate Telstra’s passive or physical infrastructure assets: the ducts, fibre, data centres, subsea cables and exchanges that underpin Telstra’s fixed telecommunications network.

InfraCo Towers – it would own and operate Telstra’s passive or physical mobile tower assets, which Telstra will look to monetise over time given the strong demand and compelling valuations for this type of high-quality infrastructure.

ServeCo – it would continue to focus on creating innovative products and services, supporting customers and delivering the best possible customer experience. ServeCo would own the active parts of the network, including the radio access network and spectrum assets to ensure Telstra continues to maintain its industry leading mobile coverage and network superiority.

Trading update.

In addition to the above, Telstra provided an update on its performance in FY 2021 and its expectations for the full year and beyond.

Pleasingly, the company has reconfirmed the FY 2021 guidance provided to the market with its full year results in August.

Furthermore, with the NBN rollout effectively complete and being more than half way through its T22 strategy, the company’s chief executive believes it will return to underlying EBITDA growth by FY 2022. After which, it is aiming to grow its underlying EBITDA to the range of $7.5 billion to $8.5 billion in FY 2023.

Mr Penn commented: “While we do not provide financial guidance beyond the current financial year, our board and management team understands the importance of achieving EBITDA in this range and the actions required to deliver it.”

”If we are successful in getting into the bottom end of the $7.5 – $8.5 billion underlying EBITDA range by FY23, this would equate to an estimated ROIC of close to 8 percent. As a result, we have updated our ROIC target accordingly to be around 8 percent by FY23,” he added.

Mr Penn also revealed that 5G adoption has been strong this year and is expected to strengthen further by the end of the year.

He explained: “Our mobile business continues to perform strongly relative to our competition. Our clear lead in 5G means we have the opportunity to capitalise on a new multi-year cycle of growth and our transacting minimum monthly commitment has continued to grow in FY21. We already have more than 400K 5G devices on our network and we expect that to reach around 750K by the end of the calendar year. “

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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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