The ASX telco stock Telstra Group Ltd (ASX: TLS) is starting to head in the right direction, with the Telstra share price up more than 13% in the last six months.
Past returns are not a reliable indicator of future performance, particularly for a large ASX blue-chip share like Telstra. However, if a business continues to grow net profit, and the valuation isn't stretched, then the share price could climb as well.
Telstra's financials delivered pleasing growth in the 2024 financial year.
Underlying income increased 1% to $23.4 billion, underlying operating profit (EBITDA) grew 3.7% to $8.2 billion, and underlying net profit rose 7.5% to $2.3 billion. It increased its dividend per share by 5.9% to 18 cents per share, with free cash flow after lease payments rising by 7.3% to $3 billion.
Here's what one expert thinks could happen with Telstra stock in FY25.
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Predictions for FY25
Firstly, let's look at what the business itself guided for the 2025 financial year.
Telstra said it expected an underlying EBITDA of between $8.5 billion and $8.7 billion and business-as-usual capital expenditure at $3.2 billion to $3.4 billion. It projects strategic investment (intercity fire network and Viasat projects) spending to be between $0.3 billion and $0.5 billion. Free cash flow after lease payments (and before the strategic investment) is guided to be between $3 billion and $3.4 billion.
UBS said in a note after the FY24 result that it remained positive about the outlook for Telstra stock, primarily due to the mobile price rises, which have now been implemented.
The broker also believed the continued focus on a $350 million reduction of net fixed costs target by FY25 was a positive for the business.
In addition, UBS noted it had lowered its expectation of subscriber growth over the medium term due to an industry slowdown resulting from falling international migration.
For FY25, UBS predicts the ASX telco share could grow its revenue to $23.86 billion, an increase of around $450 million. The broker is forecasting that Telstra's net profit could be $2.15 billion, which would be a significant rise from the company's $1.6 billion statutory net profit from FY24.
The broker thinks Telstra stock owners will receive an increase in the dividend payment, with an annual payout of 19 cents per share projected. That would be a grossed-up dividend yield of 6.9%, including franking credits.
UBS rating on Telstra stock
Taking all of that into account, UBS rates Telstra stock as a buy, with a price target of $4.40. That implies the broker thinks the ASX telco share could rise by more than 10% within the next year. Further cost reductions would be a bonus for its view on the ASX telco share.
