Can the Telstra Corporation Ltd (ASX: TLS) share price keep going higher? It has gone up more than 10% since 11 March 2021.
The telco has been rising as it continues to progress with its strategies.
One of the main parts of the strategy is to be the market leader of 5G. This is the next phase of mobile technology that should allow for much faster speeds than we already have.
To that end, Telstra recently invested $277 million to secure 1000 MHz in the 26 GHz spectrum auction. It secured spectrum in all major capital cities and regional areas where it was sold.
The Telstra CEO Andrew Penn said that the new mmWave spectrum would “dramatically” increase capacity and speeds for Telstra customers.
Why is the mmWave spectrum so important? Mr Penn said:
mmWave spectrum is especially good at providing high-speed mobile broadband in high-density areas, such as built up cities and towns, train stations, sports stadiums and other locations with a high concentration of people using their mobile devices.
The Telstra CEO also said that the additional capacity would enable the mobile network to be used more effectively for 5G broadband in the home, providing another way to deliver fast and reliable internet where the current fixed connection may not meet a customer’s needs.
If Telstra can convince a good number of NBN customers to switch over to 5G broadband at home, then it could lead to higher margins for each home connection.
How is the profit going?
Telstra’s profit continues to decline. In the FY21 half-year result, total income decreased 10.4% to $12 billion and net profit after tax (NPAT) decreased 2.2% to $1.1 billion. Reported earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 14.7% to $4.1 billion.
Competition in the mobile sector is still impacting the business, though it was able to add 80,000 retail postpaid handheld services during the period.
Cost cutting continues to be an important part to ensure the business remains as profitable and efficient as possible The T22 cost reduction target has been increased to $2.7 billion by FY22.
It’s also targeting mid to high single digit growth in underlying EBITDA in FY22 and $7.5 billion to $8.5 billion of underlying EBITDA in FY23.
One of the main ways that Telstra is helping shareholder returns is with its consistent 8 cents per share dividend every six months. That equates to a grossed-up dividend yield of 6.75%.
It’s also planning to commence the process for external investment in its InfraCo Towers division early in the first quarter of FY22. Telstra has restructured its business to create more transparency, increase focus across its operating businesses and enable long-term valuation realisation from its infrastructure businesses.
Time to jump on Telstra the share price?
Brokers are generally a fan of Telstra shares. Morgan Stanley rates Telstra as a buy with a share price target of $4 for the next 12 months.
The broker likes the restructuring of the business because each division can focus on what’s best for the segment. However, competition remains a detractor for Telstra being able to generate organic (revenue) growth.