Telstra Group Ltd (ASX: TLS) shares have suffered some pain in the last year, with a 22% decline, as shown on the chart below. Could a rise in profit lead to a resurgence for the ASX telco share?
Recently, some investors may have lost confidence in the company's outlook because of its enterprise business. The telco is best known for its mobile division, but other divisions also contribute.
Telstra has been reviewing the enterprise segment and has decided on a number of actions to rectify it. It's going to reduce the number of net applications and services (NAS) products, simplify the customer sales and service model, and reduce its cost base. Up to 2,800 roles will be removed, with one-off restructuring costs of between $200 million and $250 million across FY24 and FY25.
In that same announcement, Telstra said it planned to remove the CPI inflation-linked annual price review for its postpaid mobile plans.
After considering Telstra's announced changes, let's examine what the broker UBS projects Telstra's profit will be for the next couple of years.
FY24
UBS believes that Telstra can continue to raise its mobile prices despite the removal of the CPI indexation. That confidence comes from Telstra's "network differentiation," competitors raising prices in March, and consumers' being "somewhat a bit more conditioned on an annual price rise rhythm for mobile contracts."
UBS noted Telstra's commentary suggests "strong subscriber growth momentum has continued", which gives the broker "comfort the likely willingness of consumers to continue to pay higher prices for network differentiation over the medium-term".
The broker has forecast Telstra's net profit after tax (NPAT) could reach $$2.05 billion in the 2024 financial year and it may pay an annual dividend per share of 18 cents.
FY25
The broker thinks there is a "likelihood" of further cost reductions beyond FY25 and that the ASX telco share could see 2% growth of its blended mobile average revenue per user (ARPU) in FY25, with 3% growth in postpaid and 4% with prepaid, according to UBS.
Telstra has guided its underlying FY25 earnings before interest, tax, depreciation and amortisation (EBITDA) could be between $8.4 billion and $8.7 billion.
UBS suggests Telstra's FY25 profit could be virtually flat, with NPAT forecast at $2.04 billion. The ASX telco share is forecast to pay a dividend per share of 19 cents in FY25, according to the broker.
FY26
After the job cuts and adjustments in mobile prices, UBS has predicted Telstra's net profit can jump 24% in FY26 to $2.53 billion after a 2.5% rise in revenue. In other words, the broker is expecting Telstra's net profit margin to significantly improve in the 2026 financial year.
Telstra's dividend is forecast to increase by 2 cents per share in FY26 to 21 cents per share. The broker is projecting the ASX telco share to generate 22 cents of earnings per share (EPS) in FY26, meaning its dividend payout ratio would be below 100%, which is sustainable and allows for profit reinvestment.
Overall, I think the projected direction of Telstra profit looks promising and could help support the Telstra share price in the next couple of years.
