Telstra (ASX:TLS) share price on watch after hitting guidance & $1.35bn buyback

This telco giant has announced its results today…

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All eyes will be on the Telstra Corporation Ltd (ASX: TLS) share price today.

This follows the release of the telco giant’s highly anticipated full year results for FY 2021.

Telstra share price on watch after achieving guidance

  • Total income fell 11.6% to $23.1 billion
  • Reported earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14.2% to $7.6 billion
  • Underlying EBITDA was down 9.7% to $6.7 billion (versus guidance of $6.6 billion to $6.9 billion)
  • Net profit after tax increased 3.4% to $1.9 billion
  • Free cash flow up 11.6% to $3.8 billion
  • Fully franked final dividend of 8 cents per share, bringing full year dividend to 16 cents per share
  • FY 2022 guidance: Underlying EBITDA growth of 4.5% to 9%
  • $1.35 billion on-market share buyback

What happened in FY 2021 for Telstra?

For the 12 months ended 30 June, Telstra reported an 11.6% reduction in total income and a 9.7% decline in underlying EBITDA. Given the latter was in line with its guidance, this could bode well for the Telstra share price today.

Telstra’s EBITDA result reflects an in-year NBN headwind of $650 million and an estimated $380 million financial impact from COVID-19. If you exclude the NBN headwind, Telstra’s underlying EBITDA would have fallen only $70 million year on year.

A key driver of its improving performance was its mobile business. In the second half, mobile service revenue grew 3.7% over the prior corresponding period. Pleasingly, further growth is expected in FY 2022 from the key segment.

Also supporting its performance was an underlying fixed cost reduction of $490 million. But management doesn’t expect it to stop there and is guiding to a further ~$430 million of cost outs in FY 2022. It also sees opportunities beyond this.

Another positive which could boost the Telstra share price today is its expectation for the NBN headwind to ease. Management expects this to be just $350 million in FY 2022, down from $650 million in FY 2021.

What did management say?

Telstra’s CEO, Andy Penn, was pleased with the company’s performance. Particularly the successful investments it has made in innovation, digitisation and networks, its commitment to improving customer experiences, and its disciplined approach to capital management and productivity.

He believes this leaves Telstra well-positioned going into FY 2022.

Mr Penn said: “2021 was a really significant year for Telstra. We delivered results in line with guidance and we are seeing the focus and discipline on T22 pay off. It represents a turning point in our financial trajectory. Our second half underlying EBITDA was up on the first half, and our guidance for FY22 underlying EBITDA is $7.0-7.3 billion, which represents mid to high single digit growth.”

“We are clearly building financial momentum and I am very pleased to be able to say that our underlying business will return to full-year growth in FY22. We have confidence because we see strong performance in our mobile business, continued discipline on our cost reduction target, green shoots in some of our growth businesses and a diminishing impact from the nbn.”

Share buyback

Another positive from today’s result that could support the Telstra share price was the announcement of a $1.35 billion on-market share buyback. This follows the recent InfraCo Towers transaction.

Commenting on the buyback, Mr Penn said: “When we launched T22, we committed to establishing a standalone infrastructure business unit for three reasons: to give transparency of those assets, to bring a harder commercial edge to how we operationalise them, and to create optionality with a view to maximising shareholder value. This share buy-back is a clear demonstration of how we are creating additional long-term value for our shareholders.”

What’s next for Telstra in FY 2022?

Telstra has provided guidance for FY 2022 and is expecting the underlying business to return to full year growth.

It expects:

  • Total Income of $21.6 billion to $23.6 billion
  • Underlying EBITDA of $7 billion to $7.3 billion
  • Capex of $2.8 billion to $3.0 billion
  • Free cashflow after lease payments (FCFal) of $3.5 billion to $3.9 billion

Telstra share price outperforms in 2021

The Telstra share price has been outperforming in 2021 and is up 27% year to date. Shareholders will no doubt be hoping this result, its guidance, and the buyback will be enough to extend these gains today.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation 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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