Telstra shares tumble on half-year disappointment

The telco giant's half-year results fell short of expectations.

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Telstra Group Ltd (ASX: TLS) shares are falling on Thursday.

In morning trade, the telco giant's shares are down 2.5% to $3.89.

What's happening?

Investors have been pushing the sell button today in response to the company's half-year results.

For the six months ended 31 December, Telstra reported a 1.2% increase in total income to $11,700 million and a 3.1% lift in underlying EBITDA to $4,001 million.

This reflects growth across mobile services, International, Telstra InfraCo Fixed, and Amplitel, which offset weakness from mobile hardware, Fixed C&SB, Fixed Enterprise, and Fixed Active Wholesale.

This ultimately allowed the Telstra board to increase its fully franked interim dividend by 5.9% to 9 cents per share.

Why are Telstra shares falling?

While on paper this looks like a decent result, it was actually a touch short of the market's expectations.

In addition, Telstra shares are under pressure today after management revised its earnings guidance range for FY 2024.

Previously, the company was targeting EBITDA of $8.2 billion to $8.4 billion. However, it has now revised this in response to a weaker than expected performance from its Network Applications and Services (NAS) business.

Telstra CEO Vicki Brady explained:

Within our Enterprise Fixed business, Data & Connectivity is performing as expected, however NAS is clearly a long way from where we need it to be. […]

Given the performance in our NAS business, we are tightening our FY24 Underlying EBITDA guidance range to $8.2 to $8.3 billion. FY24 guidance across other measures is reaffirmed.

Broker response

The team at Goldman Sachs notes that the result was short of its expectations. It said:

Telstra has reported 1H24 Income/EBITDA/NPAT of A$11.72bn/A$4.0bn/A$964mn, which was -1%/-1%/-0.2% vs. our estimates, and -1%/-1%/0% vs. Visible Alpha Consensus (VAe).

The broker also highlights that Telstra's guidance implies a larger than normal earnings skew in the second half. It adds:

FY24 EBITDA guidance narrowed to $8.2bn to $8.3bn (from $8.2-$8.4bn, i.e. -1% at mid-point and vs. GSe/VAe).

All other guidance metrics are unchanged. We note the 1H24 EBITDA and revised FY24 guidance implies a 48.7%/51.3% 1H/2H skew (mid-point) vs. TLS FY16-23 1H avg. of 49.5% – with this skew previously flagged at the Nov-23 investor day.

The lower guidance reflects the disappointing NAS performance flagged at the Investor Day – which has continued Nov-Jan (lower business confidence), with its performance not expected to improve in 2H24 (i.e. typically 2H skew).

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 positions in and has recommended Goldman Sachs Group. 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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