Telstra share price on watch amid strong FY22 result and surprise dividend increase

Telstra has released its FY 2022 results…

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Key points

  • Telstra has released its full year results for FY 2022
  • It delivered a strong result ahead of expectations
  • The telco giant also surprised with a small increase to its final dividend

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

That's because this morning the telco giant has released its highly anticipated full year results.

Telstra share price on watch following strong result and dividend increase

  • Revenue dropped 4.7% year over year to $22,045 million
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) up 8.4% to $7,256 million
  • Net profit down 4.6% to $1,814 million
  • Fully franked final dividend of 8.5 cents per share
  • Outlook: FY 2023 underlying EBITDA of $7.8 billion to $8.0 billion

What happened in FY 2022?

For the 12 months ended 30 June, Telstra posted a 4.7% decline in revenue and an 8.4% increase in underlying EBITDA to $7.3 billion.

A key driver of Telstra's earnings growth was its mobile business. It performed very strongly, reporting EBITDA growth of 21.2% or $700 million over the prior corresponding period. This reflects the addition of 155,000 net retail postpaid handheld services, 2.9% postpaid handheld average revenue per user (ARPU) growth, and 6.4% mobile services revenue growth.

In addition, 1 million Internet of Things (IoT) services were added, along with 218,000 wholesale services.

Telstra also advised that InfraCo Fixed income was $2.4 billion, with core access revenue up 3.1% including NBN recurring receipts up 3.3%. Amplitel was established as a standalone business with the sale of a non-controlling 49% interest delivering net cash proceeds after transaction costs of $2.8 billion. Amplitel revenue increased by 8.9%.

Things weren't quite as positive in Fixed for Consumer and Small Business. Telstra notes that this continued to be impacted by the tail end of the NBN migration. However, there is confidence that segment EBITDA has bottomed.

Another positive was that Telstra has continued to cut costs. It revealed that underlying fixed costs were down $454 million and total operating expenses were down $906 million.

In light of this strong performance and its positive outlook, the Telstra board decided to make its first dividend increase in seven years. It lifted its final dividend by half a cent to 8.5 cents, bringing its full year dividend to 16.5 cents per share.

How does this compare to expectations?

The good news for the Telstra share price today is that this result appears to be ahead of expectations.

For example, according to a note out of Goldman Sachs, its analysts were expecting revenue of $21.6 billion and underlying EBITDA of $7.13 billion. Telstra has beaten on both.

And much like the rest of the market, the broker was not expecting a dividend increase in FY 2022. Goldman was forecasting a final dividend of 8 cents per share and a full year dividend of 16 cents per share.

Management commentary

Telstra's CEO, Andy Penn, was very pleased with the company's performance in FY 2022. He said:

Our mobiles result was outstanding, Consumer & Small Business Fixed grew sequentially in the second half, Enterprise returned to growth and we started to realise the benefits of setting up our infrastructure assets as standalone InfraCo businesses. We also continued to take cost out of the business, with underlying fixed costs down $454 million and total operating expenses down $906 million, or 5.8 percent.

Commenting on the company's decision to increase its dividend for the first time in many years, Penn said:

This represents the first increase in the total Telstra dividend since 2015 and recognises the confidence of the Board following the success of our T22 strategy, the ambition in our T25 strategy of high-teens EPS growth from FY21 – FY25, the strength of our balance sheet and the recognition by the Board of the importance of the dividend to shareholders

Outlook

Telstra has provided an update on its guidance for FY 2023. Pleasingly, it is in line with previously stated targets. It is as follows:

  • Total Income of $23.0 billion to $25.0 billion
  • Underlying EBITDA2 of $7.8 billion to $8.0 billion
  • Capex4 of $3.5 billion to $3.7 billion
  • Free cashflow after lease payments (FCFal) of $2.6 billion to $3.1 billion

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 has positions in 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 Scott Phillips.

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