Telstra (ASX:TLS) share price on watch after maintaining half year dividend

The Telstra Corporation Ltd (ASX:TLS) share price will be on watch on Thursday after the release of its half year results this morning…

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Telstra share price

Source: Telstra presentation

The Telstra Corporation Ltd (ASX: TLS) share price will be one to watch on Thursday.

This follows the release of the telco giant’s half year results this morning.

How did Telstra perform in the first half?

For the six months ended 31 December, Telstra reported a 10.4% decline in total income to $12 billion. This was driven largely by an 11% decline in consumer and small business revenue to $6.35 billion and an 8.1% decline in enterprise revenue to $3.47 billion.

Telstra’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14.2% to $3.3 billion. This was due largely to an estimated in-year NBN headwind of $370 million and an estimated $170 million impact from COVID-19. Excluding these impacts, Telstra’s underlying EBITDA would have been broadly flat compared with the prior corresponding period.

On the bottom line, the company revealed a 2.2% decline in net profit after tax compared to the same period last year to $1.1 billion.

Finally, the company reported cashflow after operating lease payments of $1.9 billion.

The Telstra dividend

One thing that has been weighing on the Telstra share price over the last 12 months has been concerns that it may cut its dividend.

Pleasingly, this morning the company has declared a fully franked 8 cents per share interim dividend, which is flat on the same period last year. This sees the company return approximately $950 million to shareholders.

Even better, though, is that the Telstra board confirmed that it also expects to pay a fully franked final dividend of 8 cents per share, bringing its total dividend for FY 2021 to 16 cents per share. This is in line with FY 2020’s dividend.

What else could impact the Telstra share price today?

There were a few more positives in the announcement that could give the Telstra share price a lift today.

One was that the company has increased its T22 cost reduction target to $2.7 billion by FY 2022.

CEO Andy Penn commented: “Telstra continued to make progress on its productivity target, reducing underlying fixed costs by a further $201 million, or 7 per cent, during the half and increased its productivity targets to $450 million in FY21 and from $2.5 billion to $2.7 billion by the end of FY22. Around $2.0 billion has already been delivered under the program.”

Mr Penn also provided an update on the establishment and proposed monetisation of InfraCo Towers, as well as the broader legal restructuring of the company.

“We plan to commence the process for external strategic investment into InfraCo Towers early in the first quarter of FY22, with binding offers to be submitted by the second quarter of FY22. We are undertaking significant verification and due diligence on our towers and property, appointed key members of the management team and advisors, and preparation work is well advanced to meet our timetable.”

“Since we updated the market in November 2020, we have appointed external advisors and progressed consultations with stakeholders to obtain approvals and support for the restructure. This includes discussions with the ACCC, the ACMA and relevant Government Departments to ensure that Telstra’s regulatory obligations will continue to apply as intended. We have also had constructive engagement with NBN Co on the restructure,” he added.

Another development announced today is Telstra’s plan to transition to full ownership for all of its branded retail stores across Australia.

This will be bad news for Vita Group Limited (ASX: VTG), which currently operates 104 of its stores. Telstra advised that Vita Group and individual licensees are being notified of the plan with discussions and transition arrangements expected to progress over the coming months.

Outlook

Possibly holding back the Telstra share price a touch today is news that it has downgraded its guidance for FY 2021. Telstra is now expecting total income to come in at between $22.6 billion and $23.2 billion for the full year.

This is down from $23.2 billion to $25.1 billion previously. Management advised that this was due to low-margin hardware and other equipment sales.

The company has also narrowed its guidance range for underlying EBITDA. It now expects its operating earnings to be in the range of $6.6 billion to $6.9 billion (from $6.5 billion to $7 billion).

Positively, its guidance range for free cashflow after operating lease payments has increased by $450 million at the mid point to the range of $3.3 billion to $3.7 billion. This is due to working capital management and the impact of lower hardware revenue.

Telstra also expects to be at the low-end of the net NBN one-offs range due to factors including NBN Co’s decision to pause HFC-based connections of new customers. Guidance for capital expenditure remains unchanged.

Looking further ahead, Mr Penn appears confident that the company is positioned to return to growth in FY 2022.

He said: “I am confident the many initiatives we have taken under our T22 program, particularly in simplifying the business and the digitisation program, will further improve customer experience.”

“To get the real benefits from all the effort we’ve already made, Telstra needs to be bold. I’ve set an aspiration for mid to high single-digit growth in underlying EBITDA in FY22 and $7.5 to $8.5 billion of underlying EBITDA in FY23. I am confident we can deliver this if we remain focused,” he added.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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