Telstra share price higher on half-year revenue and earnings beat

Telstra has outperformed expectations during the first half of FY 2023.

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Key points

  • Telstra's half year result has been well-received by the market
  • The telco giant's performance was stronger than expected
  • Goldman Sachs believes Telstra is on track to hit the upper end of its earnings guidance in FY 2023

The Telstra Group Ltd (ASX: TLS) share price is rising on Thursday.

In morning trade, the telco giant's shares are up 0.5% to $4.16.

Why is the Telstra share price rising?

Investors have been bidding the Telstra share price following the release of the company's half year results.

For the six months ended 31 December, Telstra reported a 6.4% increase in total income to $11.6 billion and an 11.4% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to $3.9 billion.

This was underpinned by momentum from its mobiles business and support from the acquisition of Digicel Pacific.

In light of its strong form, the Telstra board elected to increase its fully franked interim dividend by 6.3% to 8.5 cents per share.

The company also reaffirmed its FY 2023 guidance. Though, it did suggest its total income would be at low end of its $23 billion to $25 billion guidance range due to mobile hardware and fixed product revenues being lower than expected.

Broker reaction

Goldman Sachs has responded positively to the Telstra result, noting that its revenue and earnings were ahead of its estimates. It commented:

Telstra has reported 1H23 Revenue/EBITDA/NPAT of A$11.6bn/A$3.9bn/A$935mn, which was +2%/+1%/+4% vs. our estimates. Telstra's gearing increased to 1.9X at 1H23 (1.8X at FY22, comfort band 1.5-2X), given a working capital build drove softer FCF (-39% vs. PcP). An interim dividend of 8.5¢ps was declared, inline with our estimate of 8.5¢ps, (representing 105% of EPS Excl. one-offs and 139% of FCF, noting typical 2H FCF skew).

Looking ahead, the broker believes that Telstra is tracking towards the upper end of its earnings guidance for FY 2023.

Despite Telstra re-iterating FY23/T25 guidance, we believe that based on annualising 1H23 underlying EBITDA, and the stronger (sequentially mobile and NAS businesses, the full year result is tracking above the mid-point of its $7.8-8.0bn range.

Goldman currently has a buy rating and $4.60 price target on Telstra's shares.

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 Group. 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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