The Telstra Group Ltd (ASX: TLS) share price has again drifted below $4. It was above that level on 18 September and has dropped close to 5% since then.
Telstra is a leading ASX blue-chip share in my mind, not just because it's a large business but also because it displays many appealing characteristics that show it has resilience.
When considering which of the biggest ASX stocks can produce decent profit growth for the longer term, I don't think of the ASX bank or mining shares. The resource price dictates miners' profits, while bank loan products appear increasingly commoditised, with borrowers easily comparing prices, hurting bank margins.
Telstra offers something different to its competitors.
Leading network
Aussies continue to choose Telstra as their telco provider. In FY24, the company experienced a 4.1% year-over-year increase in mobile handheld users, with growth across postpaid, prepaid and wholesale users.
Telstra has invested and continues to invest significant sums in its network to ensure it stays number one and provides the best service for subscribers. In FY24, it invested $5 billion in the spectrum, the radio frequencies that carry data. Over the past 10 years, it has invested $42 billion in the spectrum.
Telstra's spectrum and infrastructure investments mean its network now covers 99.7% of the population. Since FY21, it has added 240,000 sq km of coverage, providing around 1,000,000 sq km more coverage than its nearest competitor.
The mobile division made 61% of Telstra's overall underlying operating profit (EBITDA) in FY24, and I think it will continue to be extremely important for Telstra's financials. During FY24, Telstra's mobile income rose 5% to $10.7 billion, and the mobile EBITDA climbed 9% to $5 billion. I believe mobile is the key division for Telstra shares.
Operating leverage and profitability
One of the most important characteristics of an appealing business is a company that can grow its profit faster than revenue. Investors want to see that generating more revenue provides scale benefits — the business should become increasingly profitable as it gets larger.
Telstra is not a software business with super-high margins, but I think it does have operating leverage. It has already invested in its mobile network, so additional users are simply utilising the existing infrastructure (and boosting profitability because fixed costs are spread over more users).
As mentioned, Telstra's mobile EBITDA grew by 9% in FY24, compared to 5% mobile revenue growth.
Looking at Telstra's overall financials, total income rose 1%, total underlying EBITDA rose 3.7% and total net profit increased 7.5%.
It's not possible to predict whether Telstra's profit will grow every year for the foreseeable future. But, if the telco keeps adding users and experiencing an increase in the average revenue per mobile user, then I think it looks very attractively priced under $4.
According to UBS forecasts, the Telstra share price is valued at 20x FY25's estimated earnings, which is appealing for this defensive and growing business.
