Telstra Group Ltd (ASX: TLS) shares have caught my attention after the telco giant delivered a robust set of FY24 results on Thursday.
At the market close yesterday, the Telstra share price was trading 2% higher at $3.95 apiece.
The company's FY24 numbers were dotted with standouts. Particularly impressive was the growth in its mobile business and Telstra's shareholder-friendly decision to up the dividend.
For a complete overhaul of the company's financials, I'd suggest checking out my colleague Kate's analysis from earlier. It covers all the moving parts. And for a comprehensive view of the dividend payout, my colleague Seb has it covered.
Here are the two main reasons why I'm looking closely at Telstra shares post-FY24 earnings.
1. Earnings growth and dividends
Many expected the company to produce soft results, so Telstra's profits stood out yesterday, and it's not surprising that its shares gained.
The telco giant reported a 1% increase in total income, reaching $23.5 billion, driven by gains across its operating segments. This led to a 7.5% increase in underlying net profit after tax (NPAT) to $2.3 billion.
Management revised guidance higher as a result of the strong performance.
According to CommSec, it now expects pre-tax income between $8.5 billion and $8.7 billion, which is slightly ahead of consensus expectations.
Notably, the Mobile segment emerged as a standout performer during FY24.
Telstra's Mobile segment's earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 9.2% to more than $5 billion.
The increase was underscored by more revenue from the higher-margin services business, but Telstra's ability to attract more than 560,000 new handheld customers played a crucial role in this growth.
With mobile use ever-increasing and mobile services becoming increasingly integrated into our everyday lives, Telstra has a competitive advantage, in my opinion.
For example, Statista forecasts the number of smartphone users to increase by around 3.7 million over the next two years to 23.6 million.
This is up from 20 million in 2017. Telstra also plans to hit 95% population coverage with its 5G network next year.
With the estimates of mobile phone user growth, plus Telstra's FY24 Mobile division numbers, any investment to grow this division should be given high marks in my view. The focus on expanding its mobile customer base could pay off.
In response to this profit growth, Telstra's board approved a 5.9% increase in its full-year dividend, raising it to a fully franked 18 cents per share.
I think this decision reflects the company's confidence in its financial position and its commitment to returning value to shareholders.
2. Brokers are bullish on Telstra shares
Goldman Sachs immediately reacted to Telstra's results – and its optimism wasn't half obvious.
It noted that the net profit exceeded expectations. The broker also commented on the company's solid balance sheet and strong free cash flow.
It has a buy rating on the telco's shares with a $4.30 price target. Meanwhile, consensus also rates Telstra shares a buy, according to CommSec.
Goldman says the company paid out 128% of its earnings per share (EPS) as dividends per share.
Meanwhile, it paid out 95% of all the freely available cash flow after all of its capital expenditures and reinvestments.
Imagine you owned an entire business that paid more than 100% of its profits to you as the shareholder and almost 100% of the cash it produced for the year.
Well, in Telstra, you have the ability to purchase a passive interest in a business that is doing just that.
Highly interesting.
Final thoughts
Telstra shares are on my radar after the company's earnings results. Based on its FY24 EPS, Telstra trades at a price-to-earnings ratio (P/E) of 21.4 times.
While this is a slight premium to the broad market, it is in line with the multiple it traded in August of 2019. Except the company is producing more for its shareholders than back then, in my view, so there's value here.
The company also has strong broker support, adding to the case. Telstra shares are down 6% in the past 12 months.
