3 overlooked numbers key to the Telstra share price

What are investors underestimating about Telstra?

| More on:
A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Telstra Group Ltd (ASX: TLS) share price is down approximately 20% since June 2024, as seen on the chart below. When an ASX blue-chip share has fallen so far, it's useful to consider whether the market is being too pessimistic.

The ASX telco share recently talked about troubles it's experiencing with the enterprise division, though it is embarking on a cost-cutting program which is expected to see thousands of jobs cut.

Telstra is expecting to achieve $350 million of its T25 cost reduction ambition by the end of FY25, though this comes with one-off restructuring costs of between $200 million to $250 million across FY24 and FY25.

Amid this restructuring, I think investors shouldn't forget about the three factors below.

Revenue is still growing

The company has a number of divisions, but the crown jewel mobile division continues to deliver for shareholders.

In the FY24 first-half result, the business made earnings before interest, tax, depreciation and amortisation (EBITDA) of $4 billion, with the mobile division generating $2.5 billion of that overall EBITDA. Growth in this division is an important driver of the overall business.

HY24 mobile services revenue increased 6% thanks to handheld services in operation (SIO) growth. HY24 mobile SIOs increased 4.6%, or 625,000, year over year.

In the May update, Telstra revealed its mobile subscriber number growth for the first four months of the FY24 second half was "consistent with the first half of FY24". In my opinion, that's positive commentary.

The fact that the Telstra share price is lower amid this growth suggests to me it's better value.

Profit is increasing

I think the most important thing to keep in mind is a company's ability to generate net profit after tax (NPAT) and/or cash flow. If the profit is regularly growing then this can support a higher Telstra share price in future years.

In the HY24 result, Telstra's NPAT rose 11.4% to $1 billion.

I'm not expecting Telstra's profit to grow every result, particularly with its one-off restructuring costs, but investing is about the long-term, and Telstra's future looks appealing.

For starters, Telstra recently reaffirmed its commitment to deliver its compound annual growth rate (CAGR) targets for underlying EBITDA, earnings per share (EPS) and return on invested capital (ROIC) growth.

Telstra said in its May update that the growth of the mobile business has "underpinned" its EBITDA growth in FY24 to date. In FY25, Telstra is expecting underlying EBITDA to grow to between $8.4 billion and $8.7 billion.

The broker Goldman Sachs thinks Telstra EPS can rise from 17.3 cents in FY24 to 20 cents in FY26. The ASX telco share's rising profit could also fund a growing dividend if that's what the board of directors decide to do with the increasing profitability.

Data demand is rapidly climbing

National data usage is growing rapidly in Australia (and globally). AI and data centres are driving a significant increase in data use and power demand, and Telstra is one of the main businesses that is helping transmit data into and around Australia.

Household demand is growing thanks to online video streaming, VR, online gaming and so on.

I believe there is a growing prospect that 5G (and eventually 6G) developments could help encourage households to use wireless-powered broadband rather than the NBN. This could unlock higher profit margins for telcos, which could help Telstra's shares. In the FY24 first-half result, Telstra said its fixed wireless offering take-up doubled over 12 months, though that's starting from a small number.

Motley Fool contributor Tristan Harrison 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.

More on Communication Shares

A woman peers through a bunch of recycled clothes on hangers and looks amazed.
Share Market News

Time to pounce? 1 phenomenal ASX stock that hasn't been this cheap in a while

Now might be the time to look at the Telco giant.

Read more »

Young woman using computer laptop with hand on chin thinking about question, pensive expression.
Communication Shares

Are Telstra shares now a brilliant bargain?

Telstra is optimising its costs for future profit growth.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Communication Shares

Here is the earnings forecast through to 2026 for Telstra shares

Is the profit outlook for Telstra shares promising?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Communication Shares

How UBS expects Telstra shares to gain 27% and deliver dividend growth

Having recently hit three year lows, UBS sees sizeable upside potential for Telstra shares.

Read more »

Communication Shares

Is the Telstra share price too cheap?

Could this be an opportunity calling?

Read more »

A man wearing a colourful shirt holds an old fashioned phone to his ear with a look of curiosity on his face as though he is pondering the answer to a question.
Communication Shares

What are brokers saying about the Telstra share price after this week's update?

Does the telco giant's guidance update change things for investors?

Read more »

A man looking at his laptop and thinking.
Communication Shares

Telstra share price slips amid 2,800 cuts for growth

Australia's biggest telco is setting its sights on improved profitability with this cost-cutting move.

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Communication Shares

How much could $10,000 invested in Telstra shares be worth next year?

What do analysts think this telco giant's shares could be really worth?

Read more »