Telstra Group Ltd (ASX: TLS) shares are one of the ways that Aussies can invest in a large blue-chip on the ASX. I think investors should consider investing in the ASX telco share at its current valuation.
The company may be best known for its mobile network, but it also has household and small business broadband customers, large enterprise customers, cybersecurity, Asia Pacific operations and infrastructure assets.
Its operations are diversified, but there's more to weigh up than just diversification. Let's dive in.
Positives
Telstra maintains an impressive market position in the mobile market, with a reputation for having the best network. It has a lot of good spectrum assets, the widest network coverage, and a status of reliability.
Being able to attract customers based on the quality of its network has given the company pricing power. It's able to charge more than competitors (and increase prices), delivering a greater return on its investments in its network than competitors.
The business has seen its subscriber count increase over the years, giving the company pleasing operating leverage. It's able to spread the cost of the network across more users, boosting profit margins. During FY25, Telstra's mobile subscribers grew 0.6% including both consumer and wholesale users, with mobile revenue rising 3% to $11 billion and operating profit (EBITDA) grew 5% to $5.3 billion.
Growing profit is one of most important things that a business can do – Telstra's mobile division is delivering the goods. I'm expecting more growth as Australia becomes increasingly digital and connected. FY25 saw earnings per share (EPS) grew 3.2% to 19.1 cents and cash EPS increased 12% to 22.4 cents.
Broker UBS projects the company's reported EPS could climb to 22 cents in FY26, 23 cents in FY27, 25 cents in FY28, 28 cents in FY29 and 31 cents in FY30. That suggests EPS could rise by 62% between FY25 to FY30, which is a great outlook.
Finally, the dividend is solid and continues to grow. UBS estimates that the dividend per share could be 21 cents in FY26, translating into a future grossed-up dividend yield of approximately 6%, including franking credits.
Negatives regarding Telstra shares
The Telstra share price has performed pleasingly for shareholders, rising around 20% in the past year. However its earnings have not risen as fast as that, resulting in a higher price/earnings (P/E) ratio.
A higher P/E ratio is not preferable, but I still think the current valuation is attractive. According to the UBS forecasts, the Telstra share price is valued at 22x FY26's estimated earnings.
I think it's also a good idea to monitor how much Telstra charges for its mobile subscriptions, to ensure Telstra remains competitive. Competition could win market share if they're able to offer deals that are cheap enough to win disgruntled customers. The company's average revenue per user (ARPU) may not grow as fast in the next three years as the last three.
But, with those aspects in mind, I still think the Telstra share price is a good long-term buy.
